Confused about where to invest amidst rising interest rates? Consider these 3 investment options.

These three investment options are attractive to investors.

fixed income investments

Fixed-income investors have faced trouble in the past few years since the pandemic. Central banks tried boosting their economies by reducing policy rates across the world. It led to small saving schemes, bank FDs, and overall fixed-income products returning poorly. Rising inflation was a nightmare as central banks tried to fight to grow the economy. It led to most countries reversing their stance and increasing their rates. The RBI increased its repo rate by 250 bps to 6.5% to deal with inflation. 

Expert Talk

Rising yields have bettered the FD returns and liquid funds. However, it inflicted some losses on duration-based funds. Some experts believe the central bank will use lower interest rates if inflation abates. However, we need more clarity on the future interest rate movement. Kotak Investment Advisors Limited, CEO-Investment Advisory, Lakshmi Iyer, believes that the MOC has not implied or explicitly suggested a rate action pause in the future. The rate increment continues to attribute to domestic and global cues. 

Here are a few investment products that might deliver better returns to fixed-income investors: 

Also ReadShort-term investment options for high-returns.

1.SDFs or Short Duration Funds

Short Duration Funds, or SDFs, invest in short to medium-maturity bonds. They invest in 1-3 year Macaulay Duration bonds. These bonds are less sensitive toward movements in interest rates than long-maturity bonds. Investors prefer SDFs when the rates increase because they can redeploy the proceeds from short-maturity papers in higher-yielding bonds. It leads to improve the fund's performance. You must look to invest in these with a three-year horizon and take home returns that are tax efficient. Its interest rate is 6.99%. 

2. TMFs or Target Maturity Funds 

Target Maturity Funds might attract investors looking for returns from debt funds in a defined time frame. TMFs are debt mutual funds that are passively managed and track fixed-income indices. These hold underlying index securities and have a predefined maturity. The gains are taxed at 20% after indexation. 

3. Bank FDs

FDs offer many more options because new-age and small finance banks are offering their own versions. It has a fixed and assured return, making it an attractive option. The rising interest rates have led to an increase in interest rate hikes. Banks offer 3-7.5% interest rate on FDs. However, each bank offers its own interest rates.  

Also ReadAre gilt funds a good investment option?

You can look toward these investment instruments if you want to fight the increasing interest rates. These are tried and tested by experts and can help you gain in this volatile market condition. 


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