Money Money Money: Plan your debt investment strategy

The interest rate cycle is about to turn. Perhaps, it is only a matter of time when one starts seeing some format of tightening or rate hikes in India as well. As an investor, when one is looking at the fixed income part of one’s portfolio, what does it mean? In any case, fixed deposits (FDs) have been yielding very little return and a lot of retail investors are wondering what else they can do to go beyond the age-old FD? There are enough options in the market, the question is which one suits your need. Mohit Gang, CEO and Co-Founder at Moneyfront discussed this further.

"The debt market per se and the fixed income investors have a lot to think about. Rate cycle turning is a question of ‘when’ and not a question of ‘if’. They will definitely turn, given the way inflation has been inching up, given the way the buoyancy is there on the consumption side of the economy, so the Reserve Bank of India (RBI) has been sending those signals. The recent monetary policy committee (MPC) also, they hinted at sucking out the liquidity back from the system gradually in a systematic, calibrated way. So the rate cycle will turn,” he said.

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“The real rate of interest in the economy has been negative for a fairly long while now. Repo rate has been pegged at 4 percent since May 2020 and it is a very long pause at rock-bottom rate –in that scenario, all the fixed income instruments have been fetching in that band of around 5-6 percent and to figure out something which gives you or delivers you more than inflation has been a real tussle for the investors not just in India but across the globe, that is the scenario,” he shared.

According to him, FD is not beating the inflation numbers and hence not delivering any positive carry out there.

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“So there is no reason why someone should be in a fixed deposit unless it is for extreme emergency corpus or an extreme safety kind of a corpus. Other than that, there are multiple instruments which are available in the market. There are these lot of NCDs and bonds and debentures which keep coming up. These are issuer specific papers,” he explained.