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Where should I invest for a short-term period (next six months to one year)? Are gilt funds a better option for the next few months, as RBI has kept the rates constant? Also the equity market is already high and could show correction in the short term.
- Rohit Saxena
For a six-month period, equity is ruled out anyway because equity investment does not make much sense for any money that you may need in the next five years. So, you're left with fixed-income options. Avoid gilt funds because a breeze of change in interest rate outlook will translate into a loss for these funds. Although they never face any default because it's a government-security portfolio, gilt funds do go down in value. When interest rates go up a little bit, these funds decline. And right now, all gilt funds are very nicely poised to benefit from a rate cut. So, if everyone gets a surprise in the form of some positive economic numbers, we could well see a change and thereby losses.
By the way, in the last five-six years, all debt fund managers have got negative surprises when it comes to their interest-rate outlook assessment. In the last five years, on three occasions, most mutual fund managers were expecting an interest-rate cut but interest-rate hike came their way, which translated into some meaningful losses for investors. So, I would say at most, opt for ultra-short-duration funds and that's about it.
This article was originally published on August 19, 2020.
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