Mutual fund tweaks that your portfolio needs amid rising interest rate regime

Equity mutual funds are anticipated to offer modest returns in the near term, despite extremely hawkish central banks throughout the world on interest rate hikes.

Rebalancing one's mutual fund portfolio is therefore necessary since switching from short-term equities funds to ultra-short-term and debt mutual funds may result in a 0.50–1% increase in returns.

Tax and investment experts say that due to the RBI's aggressive stance on interest rate hikes, the return on stock mutual funds over time horizons of six months to two years may be subpar. 

 Therefore, it is advisable for people who have equity mutual fund investments for such a time horizon to switch their investments from such mutual funds to liquid and bond funds.

They said that, in the face of rising bank interest rates, money markets might also be a wise choice for rebalancing a mutual fund portfolio.

Investors in mutual funds who are interested in short-term investments are recommended to consider liquid and bond funds since they may offer returns that are up to 1% more than the current annual return.


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