Is investing in debt better than equity?
Tariffs made RBI governor Sanjay Malhotra do the following
- Cut GDP forecast from 6.7% to 6.5%
- Stance changed to “accommodative” – meaning will do anything for growth
- Soft signalling more rate cuts coming this year
So with inflation expected to be around 4% this year and real interest rate (Interest rate – inflation) generally around 1.5%, we believe the Repo Rate can come down by another 50bps to 5.5% by year.
This is great news for debt investors.
Now let me tell you how investing in long term debt today can be highly rewarding.
Interest rates have inverse co-relation with bond price. So when interest rates fall, bond price go up and vice versa.
In the current expected scenario of rates falling, your long duration bond say maturing in 2035 can have two return component.
- Yield (currently around 6.5%)
- Bond price increase (1% for each year to maturity)
So if you invest in long term debt funds today, you can possibly make close to double digit returns in 18-24 months. Safety of Government debt and return of equity, great isn’t it.
Recent average returns of all long duration funds.
1 months – 3%
3 months – 3.56%
1 year – 11.05%
Confused on which fund to pick? Check out the SMART DEBT Basket in MIRA Money App.