Active Stocks
Fri May 24 2024 15:59:27
  1. Tata Steel share price
  2. 174.80 -0.37%
  1. NTPC share price
  2. 374.85 0.68%
  1. State Bank Of India share price
  2. 828.60 -0.45%
  1. ITC share price
  2. 436.10 -1.16%
  1. Power Grid Corporation Of India share price
  2. 318.50 -0.39%
Business News/ Money / Personal Finance/  With RBI expected to cut interest rates later this year, where should you invest?
BackBack

With RBI expected to cut interest rates later this year, where should you invest?

During rate falling scenario, long term instruments are believed to be a rational investment choice. Moreover, Indian bond market is seen to be in a better shape with the upcoming bond index inclusion.

It is also recommended to lock money in the long-term fixed deposits (FDs) before the downward cycle kicks offPremium
It is also recommended to lock money in the long-term fixed deposits (FDs) before the downward cycle kicks off

The Reserve Bank of India (RBI) is expected to cut the interest rates later this year, thus kicking off the rate cut cycle in the market. However, RBI in its Feb 2024 monetary policy meeting (MPC) kept the interest rates unchanged for the sixth time in a row.  But this is expected to change as the banking regulator is likely to go for the interest rate cut later this year, Reuters reported.  

In the US too, the Federal Reserve indicated that it might opt for three rate cuts this year.  

And when that happens, there are a slew of investment opportunities which small investors can explore. These include long term bonds, gilt funds of 1.5 to 2-year duration, long term term-deposits and balanced mutual funds with equity allocation lower than 65 percent.

Let us explore more on this here.

These are the four investment instruments for investors:

1. Long term Bonds: During rate falling scenarios, long term instruments are believed to be a rational investment choice. Moreover, the Indian bond market is seen to be in a better shape with the upcoming bond index inclusion. 

“In an interest rate falling environment, adding long duration debt can help. We suggest investing in long dated government bonds directly or via long duration debt funds that invest in government securities. While we don’t expect a sharp decline in interest rate this year, we think the trajectory is downward. We think the bond inclusion is a structural positive and could help fixed income markets," says Alekh Yadav, Head of Investment Products, Sanctum Wealth.

“It is advisable to stay invested for a long period so that one can make money by redeeming the bonds at a later stage because interest rates, itself, won’t give you much," says Prof Saumya Aggarwal, an Assistant Professor in Commerce Department, Sri Ram College of Commerce (SRCC), University of Delhi. 

2. Investing in fixed deposits: It is also recommended to lock money in the long-term fixed deposits (FDs) before the downward cycle kicks off. Interest rates have been stable for quite some time now and therefore, FD interest rates are stable too. One should, therefore, lock money in the term deposits in order to make the most of the interest rate cycle. 

ALSO READ: For emerging markets, the tide seems to be turning on hopes of a rate cut

3. Gilt mutual funds: It is also recommended to invest in debt instruments via mutual fund route. And among the debt mutual funds, gilt funds are seen as a better bet over other options.

“There are two key investment opportunities once the rate cuts happen: one is long duration funds and the second is gilt funds of 1.5 years to 2 years duration. But allocation to gilt funds should not be more than 10 percent of the overall portfolio," says Sridharan S. Founder of Wealth Ladder Direct.

4. Balanced mutual funds: It is also suggested to invest in the balanced mutual funds which have an allocation to equity in the range of 35 to 65 percent. 

“Investing in balanced mutual funds with allocation between 35-65 percent gives you the benefit of indexation. So, one can invest in these funds when the interest rates are falling," says Prof Aggarwal from SRCC.

 

You are on Mint! India's #1 news destination (Source: Press Gazette). To learn more about our business coverage and market insights Click Here!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 23 Mar 2024, 11:46 AM IST
Next Story footLogo
Recommended For You