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18 Mar 2011 12:00 AM
Short term and regular saving plans look more attractive 
Mustafa Jawadwala
 

One year investment horizon in debt funds will help to lock in good returns says Chaitanya Pande - Head Fixed Income, ICICI Prudential MF

What impact will interest rate hike will have on the bond market?

I don’t really think that this particular hike in interest rate was unexpected. The rate hike didn’t have much impact on bond market. What was more critical in the policy was higher inflation and rising oil and commodity prices. There were also concerns for deficit being assumed on lower oil prices.  Markets were expecting a hike of 25 basis point which RBI delivered. I expect short term rate to come down from their peak level in the near term.

The bond markets are currently looking relaxed because there wasn’t much supply in last couple of weeks. But from next month supplies will start picking up with a reasonable amount of Rs. 10,000-15,000 crore per week. Going ahead there could be some fatigue in the markets. I expect the one year yield to come down by 50-100 basis points and ten year yield to trade between 8-8.25 per cent.

Will FMPs be more attractive?

Right now FMPs are attractive. The hike in the interest rate has not affected FMPs much. Also markets are already factoring with one or two more hikes by the RBI in the coming quarters.

Which kind of funds will you suggest in the current scenario and for what duration?

I think people should invest in funds with duration of one year. In the current scenario best funds to invest are mid maturity funds like short term plan and regular savings plan. Investor can also put in their capital in retail debt funds which have been recently launched.  FMPs with one year or 15-16 month maturity are also a good bet.

 
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