I want to ride on the wave of gilt funds by investing a lump-sum amount and diversifying my investments in money market and banking or PSU debt funds. Does the interest-rate risk prevail in banking and PSU funds as well?
Yes, very much so. But talking about gilt funds first, most of the time when we are tempted to ride on the wave, that is actually the time when we should not. This is because right now you will be looking at 20 to 18 per cent return on some of the gilt funds but when you try to ride on it, the return may actually go downhill. The ideal time to ride on this wave would have been before they gave this kind of return.
I also visualise that there will be future rate cuts, too, but not at the same pace at which, we have seen in the recent past. So, you will ride on the wave but you may not get a massive blow. You may not be able to ride upward in the same way as the recent performance. This is because you are looking at the rear view and being lured by the recent past performance in the hope that it will repeat. However, it may not.
In my view, one shouldn't do such tricks with fixed income because my sense has been that in the fixed income, you don't get a bonanza. You will have to look at fixed income in a manner that you do not lose your capital. It should be your conservative and rebalancing allocation aimed at providing stability to your portfolio.
Get all venturesome with equity. Use fixed income to provide stability, protect the downside and manage your risk. And simultaneously, work on your asset allocation. That's the simplest thing that you can actually embed in your risk management framework and every individual should have it.
Get stability and don't get attracted by these extraordinary returns. Many people have not been able to actually get this, we just see it in the numbers.