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Investing in Bond funds

The fluctuating prices of bonds can be used to enhance your portfolio's returns by investing in debt funds...

I want to invest in bond funds but currently interest rates are seeing a decline. Is this a good time to invest in bonds? Which are good bond funds to invest in? Also, I want to know more about MIPs.
-Nirav Ghelani

There has been a downward interest rate trend and we have seen a 75 basis points cut in the interest rates since the start of the year.

The period with highest rates was the most opportune time to invest in gilt or long-term bond funds, which has passed. However, with inflation following a downward trend, there is a general consensus expecting more rate cuts. Therefore, it could be an opportune time to get into gilt funds for an opportunistic fixed income investor.

If you want to invest in a debt fund for long-term, you should consider investing in dynamic bond funds or flexi debt funds. These funds can invest in all kind of debt instruments with varying maturities, depending on interest rate scenario. Such flexibility helps in uncertain times. These funds adapt themselves to the changing interest rate scenario, thus reducing interest rate risk to some extent.

Monthly Income Plans (MIP) are conservative debt-oriented funds that invest around 10 to 25 per cent in equity and the rest in debt. MIPs aim to provide regular dividends, although it’s not mandatory for the scheme. These funds are expected to outdo inflation with their equity exposure.

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