Considering high interest rates and inflation, how should one go about investing fixed income?
One can prefer the shorter end of the yield curve with duration of one to two years. Short term interest rates are ideally controlled by RBI. We see interest rates continue to tighten in the short-term due to high inflation. So lower the duration lower would be the risk of interest rise in the shorter term and vice versa. In mutual funds one can take exposure in floating rate instruments or fixed maturity plans (FMPs). FMPs can be taken for a lock-in period of one to one and half year. However, one must closely assess the portfolio before investing in FMPs. One should avoid the funds that had taken exposure in real estate and broking companies. In terms of gross pre-tax returns, investors can expect 10-10.5% and also can get double taxation benefit. In case of floating rate instruments, one can take the benefit of higher interest rates in the short-term due to liquidity tightening. Returns of 8-8.5% in liquid instruments can be expected. In general what would you advice investors? Inve
