Best debt funds to invest in now

Interest rates have been low for a long time. However, global cues now suggest that the situation is at the cusp of a reversal. The US Fed has announced that it will speed up its bond-reduction programme, thereby making way for rate hikes in 2022, while the Bank of England has already hiked rates. These hawkish stances hint towards the prospect of a rate hike in India too. But our economy also faces counterforces. The concerns over the emergence of Omicron may nudge the Reserve Bank of India to remain pro-growth. While experts agree that rates should be hiked to control high inflation, they also believe that the RBI will not do so immediately. Nevertheless, a rate hike is inevitable. Any change in the interest rates causes turbulence in the debt markets. To help you navigate the choppy waters, we look at which funds should be avoided if rates are hiked and which are best suited for such an environment. Two experts - Amit Tripathi, CIO- Fixed Income at Nippon India Mutual Fund and Rajeev Radhakrishnan, CIO - Fixed Income, SBI Mutual Fund, help elucidate. Strategies to adopt when rates are rising 1. Versatility of short-duration funds - Most preferred Short-duration funds (including corporate bond and banking, and PSU debt funds) are truly all-weather debt funds. They are stable and versatile, and given their long-term record, they should be the core of your fixed income investments. From here on, these funds might witness some turbulence when rates rise, but over a reasonably long horizon of two years or more, they should not disappoint you. Their charm lies in their ability to optimise returns by active management within narrow, well-defined boundaries on duration and credit calls, and such a strategy works through the ups and downs of an interest rate cycle. Experts say short-duration funds should be the heart of your debt portfolio. If y