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The Reserve Bank of India (RBI) has hiked the repo rate by 190 basis points (bps) since May 2022. Increasingly, the view within the debt market is that we are approaching the peak of the current rate hike cycle. Investors are keen to know how they should structure their debt fund portfolios in this environment, and whether they should enter longer-duration funds.
The rate impact
It is better to stick to shorter-duration funds in a rising interest rate scenario. These funds hold bonds which mature faster. As interest rates rise, their portfolios invest in newer, higher-yielding bonds. Their average portfolio
