With high interest rates likely, investors need to avoid long-term funds

Shorter-duration funds will benefit from being able to reinvest at regular intervals

The 10-year government bond yield has risen to around 6.2 per cent. With interest rates expected to rise this year, investors need to recalibrate their fixed-income strategy.

What has caused the spike?

In the Union Budget, the government announced it would borrow another Rs 80,000 crore during the current fiscal year, which surprised the markets. The government plans to borrow Rs 12.06 trillion in 2021-22 (FY22). At 6.8 per cent of gross domestic product, the fiscal deficit for FY22 is higher than expected.

The government set a fiscal deficit target of 4.5 per cent for 2025-26 in the Budget, indicating