Should I exit from Banking and PSU funds in view of inflation and probable interest rate hike?
- Chandra Basu Mullick
The concern is valid. Everybody is thinking that interest rates will also go up since inflation is going up. This, as interest rates generally follow inflation. However, sometime back, the RBI Governor said it is an unusual year, and unlike any other year, interest rates will not go up simply because inflation is going up. While inflation has seen a rise, RBI is still responsible for reviving business confidence and credit growth, if at all it is possible. And for that reason, the RBI is going to keep the interest rates low. I would thus bank on his statement. Hence you should not exit your investments in anticipation of an interest rate hike.
However, that said, the returns from fixed-income funds have come down sharply and are likely to remain low. One needs to settle with that. At the same time, the probability of capital loss due to an interest rate hike can be ruled out. While the interest rates shall remain low, so shall be the returns from these funds.