With the RBI finally biting the bullet on interest rates, we've decisively entered the rate hike phase of the interest rate cycle. In this month's review of Growth funds, we talk about the real issue vis-à-vis inflation you should be worried about, the performance trends and their implications, and the case for multi-cap funds - the newest variety of diversified equity funds. We round it up with a commentary on the changes in the recommendations of our analysts in the flexi-cap, large & mid-cap, and value categories. Inflation, interest rates and your equity investments The RBI increased interest rates by 0.40 per cent on May 4, 2022 and it marks the start of possibly a few more in the coming months till the inflation drops back in the central bank's comfort zone. The rate hikes were very much on the cards for some time now, but now that they have finally started, people worriedly ask about the prospects of the equity markets and their equity funds. You can read our views on this and what the past teaches us in greater detail. In a nutshell, our advice is to simply avoid reading too much into this development. The markets may react nervously (and make headlines) to each instance of a rate hike over the next few months and quarters but that's not the time frame you invest in equities for. Over the next few years, it won't matter much. So keep calm and carry on! The real issue which you should worry about is how the surging inflation and the corresponding increase in your expense basket is impacting your ability to save and invest. An SIP that has stopped or a deferred increase in the SIP amount won't make the headlines but it will impact your long-term wealth in a much bigger way. While the magnitude of the issue differs for each investor, make every possible effort to not let the rising expenses derail your investment plan. The only antidote is to try and keep your SIPs going, even if it requires a cut on some of your discretionary spending. Performance - Value funds surge ahead but diversification's your best bet The market rally after the first lockdown in 2020 brought the value theme back in vogue and it has continued to outperform growth-styled funds by a good margin. Not only have they made better use of the bull run, value-oriented funds have also fallen lesser as the markets turned jittery in the last six months over global inflationary concerns. And in the context of the prevailing global macro-economic and geopolitical situation, growth style may continue to take the back seat. Now the value theme has been firing on all cylinders on the back of stellar performance of sectors such as energy, metals and PSUs on the bourses. But if you compare th
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