How to invest in rising interest rate scenario?


Negative or abysmally low returns by most debt mutual fund schemes in the last six-month, one-year and three-year periods have spooked investors. Consequently, debt mutual funds have witnessed a 13% fall in assets under management (AUM) y-o-y to ₹9.10 crore. Month-on-month, the AUM is down by 2.3%. High inflation, rising bond yields and interest rates are to be blamed for disappointing returns in the debt schemes. Manish Banthia, Senior Fund Manager, ICICI Prudential AMC explains what to expect from the bond market in near term and its impact on the debt fund returns. He also elaborates the investment strategy for debt fund investors to benefit from the current bond market.

In a rising interest rate scenario, says Banthia, products like floating rate funds make a lot of sense as they are defensive. These funds also provide you upside as the interest rates move up.

“Till the time we see the Reserve Bank of India (RBI) getting into interest rate cut scenario again, floating rate instruments will suit investors,” says Manish Banthia. From valuations perspective, he adds, these instruments are trading at very cheap valuations as compared to other instruments like corporate bonds, fixed interest government securities and are hence suitable in the current market context.

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