What should be your debt investment strategy after RBI's policy review

Several investment advisors believe that investors should consider the characteristic of debt funds they are going to invest before allocating money.
The Reserve Bank of India ( RBI ) holding policy rates, as it did today, is always a bit confusing for many debt mutual fund investors. A status quo doesn't offer any concrete cues unlike a rate cut which everyone knows is positive for debt mutual funds , especially for long-term debt funds. And the diverse investment advice from experts - invest in accrual funds, duration funds, long-term funds, among others -- adds to the confusion. So, what should be your debt investment strategy after the policy review today?
"The policy was along anticipated lines. It is clear that the RBI would continue to focus on inflation. It has also said that the accommodative stance is likely to continue. The yields are likely to be range-bound with a downward bias in the near term," says Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mutual Fund.

"Retail investors should focus on non-liquid funds to fetch better returns. They should invest in a mix of both short-term and long-term debt funds. At least 75 per cent of the portfolio should be in short-term funds and the remaining 25 per cent should be invested in long-term funds to benefit from the likely fall in yields sometime in the second-half of the year," she adds.

Murthy Nagarajan, head, fixed income, Quantum Mutual Fund, believes that inflation might ease in the coming days and debt investors can look forward to rate cuts in the later part of the year. "A lot depends on the monsoon. Also, the liquidity would come back to the system in June-August period. By August or October we would get a fair idea about further rate cuts," he says. He recommends short-term debt funds and dynamic funds to investors.

Don't focus only on rates
"I think investors shouldn't focus solely on interest rate movements and RBI policy reviews and finalise their debt investments. They should remember that there will be a policy review every quarter," says Hemant Rustagi, CEO, Wiseinvest Advisors, a wealth management firm based in Mumbai.
"Investors should focus on their goals and allocate money accordingly. They shouldn't allocate money to a particular scheme only because they will benefit from rates going up or down," he adds.

Several investment advisors like him believe that investors should also consider the characteristic of debt funds they are going to invest before allocating money.

"Your goals should dictate your choices. The basic idea is to invest in a product that will help you to meet your goals. If you have a long-term goals, it just doesn't make sense to invest in a short-term fund because of the interest rate outlook," says Suresh Sadagopan, chief financial planner, Ladder7 Financial Advisories.

Abhinav Gulechha, a certified financial planner (CPF) and founder of Soham Financial Planners, says he considers a rate cut or status quo a non-event. This is because Gulechha recommends only liquid funds and ultra short-term funds to his clients. These funds are mainly used to park surplus funds for a short-term period and they are less volatile than other debt funds.

"Our advice is very simple. Invest in equity for goals that are at least 10 years away. Park the rest of the money in liquid and ultra short term funds. Because of this strategy you take extra risk only on your equity investments, not on your debt investments. Even debt funds carry different types of risk," he says.
Source : ET wealth