Interest Rate Advantage

The RBI’s sharp interest rate hike has raised some questions about its impact on fixed income mutual funds. While there is no doubt been an impact, it’s more in the nature of the confirmation and cementing of an existing situation rather than anything new. Certainly, whenever interest rates rise, there is an impact on the price of debt securities and thus there should be a fall in the NAVs of funds that are holding these securities. Currently, rates have been on their way up steadily since February 2010, and no one can realistically say, with any certainty when and where this trend will halt or reverse. The finance minister himself has said that this may not be the last hike. However, this impact of rate hikes is proportional to the residual mat

This article was originally published on August 01, 2011.