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The Mutual Fund Show: Are Thematic Funds A Good Bet Now?

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Suresh Sadgopan: As far as floating rate bonds are concerned, I agree with Gaurav. If the view is that for the next one year, one-and-a-half, two years, the interest rates are going to go up–of course, it is very difficult to say that.

(But) You cannot really rule that out also, considering the geopolitical situation and the various other things which are happening out of that geopolitical situation–like your interest rates going up, inflation catching up, and probably a recession, and things like that. So, if that is the case, then probably a floating rate fund may make sense.

One of the challenges as far as a floating rate fund (is concerned), typically, is that there are not enough floating rate funds, which are available as we speak currently. However, as per the mandate given by SEBI, floating rate funds should have at least 65% invested in floating rate instruments.

What fund managers do to cover this is basically go for interest rate swaps, overnight swaps and all that. And then, fixed income, a fixed instrument is converted into something like a floating kind of instrument. It’s a via kind of a route and this will work well in a rising interest rate scenario. It will not work well obviously the other way.

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So, it is not a surprise that there are not too many funds, and there is not too much investment into a floating rate fund.

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Coming to your question, is a floating rate fund a good choice–probably, to some extent of the portfolio, it may be something that we can opt for.

And I concur with what Gaurav says, we can also look at the shorter end of the debt funds. He talked about really short-end, like overnight and those kinds of things. I would probably go all the way to say low duration, money market kind of things also.

As and when the interest rate cycle peaks or if that is our judgment, at that time, we can probably lock it into something else.

For people who have a real long-term view, there are also longer tenure funds which are available, which will have a roll-down strategy or which will have a target maturity strategy.

For people who are not really looking at income from that or have a typical long-term view, and want a good tax-adjusted return, these kinds of funds also are something worth considering today.

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