As economic activity has revived following the easing of most COVID19 restrictions, interest rates appear to have bottomed out. The RBI will need to start normalizing interest rates to ensure a positive real interest rate for depositors as inflation rises. Therefore, an increase in the interest rate per RBI over the next year seems imminent. However, there is uncertainty as to when this will happen, as well as the size and pace of the rate hike, as the RBI seeks to support the economic recovery while responding to risks posed by inflation and tapering. of stimulus from the US, which could keep the debt market volatile for the next 612 months. With interest rates expected to face further upward pressure, generating yields from longer duration debt may not be an easy task for the Debt Mutual Fund. (since bond prices and interest rates are inversely related). Once interest rates start to show strong upward movement, funds that have higher exposure to n-instruments may see their NAV fall.
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