Long term, savvy investors have taken any dips as opportunities to buy equities both directly and via mutual funds and will wait for the markets to recover to make their gains in equity.
But what about the gains to be had from debt?
In its zeal to battle soaring inflation, the RBI hiked the repo rate (the rate at which the RBI lends funds to the system) by 375 basis points since March 2010 bringing us to the peak of the interest rate cycle today. Going forward, we can expect liquidity to be slowly eased into the economy to boost growth, and when that happens debt funds can start significantly contributing to your wealth building process.
The rule with debt funds is simple. When yields fall, prices rise, and vice versa. As the RBI cuts rates and interest rates start to go down across the board, investments in debt mutual funds will start to make money as prices of these instruments go up. If your portfolio is diversified across the asset classes (equity, debt, property and gold), and the debt component of your portfolio is geared for gains, then the coming year will go very smoothly on the debt side.
There are 2 main things you need to know when considering debt investments: