Why exiting liquid funds may be a good idea amidst the likely rise in interest rates

why exiting liquid funds may be a good idea amidst the likely rise in interest rates

Sumary of Why exiting liquid funds may be a good idea amidst the likely rise in interest rates:

  • For a one-year fixed deposit that pays around 5 percent, the real rate is negative.
  • Even if you are content with current yields and want to hold on to investments till maturity, you are bound to experience volatility as interest rates move up.
  • Impact of staying invested in very short-term avenuesLiquid funds or very short-term fixed income investment options look safe, if you think that interest rates would go up.
  • The strategy here is: wait till rates rise, then switch from short-term investments to 1-3-year fixed deposits or short-term bond funds.
  • But at the same time, investors cannot ignore the fact that very short-term fixed income avenues such as liquid funds are delivering very low returns.
  • ”A note issued by IDFC Mutual Fund earlier, recommends investments in medium-duration government securities.
  • “While choosing bond funds, investors should ideally match their investment timeframe with the duration of the fund.
  • Chief Financial Planner, Plan Ahead Wealth Advisors recommends the use of bar-bell strategy.

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