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Avoid investment in Debt Funds when Interest rates are going up

Why avoid investment in debt funds where interest rates are going up

In the world of investment, one thing we do not want to happen is to have a fall in the value of the return made from an investment. It does not bring much excitement if an individual who invested a particular amount of money during a year have a reduction in the amount generated or she is taking out over the expected return time for such an investment.

Debt funds just like any other type of mutual fund has a very high potential of bringing lots of profit as well as creating loss for investors if such a fund is not properly managed, therefore there is a rising need for investors to understand the implications of all market conditions around.

However, it should be noted that a rising interest rate have a very high potential of changing a lot of things about the investors, such as his or her perception, how he or she perceive possible risks associated with investments and others. An increase in the interest rates helps to increase the rate at which investors are exposed to risks associated with the fund investment.

Investing in Debt Funds

As an investor, an increase in the interest rates available on debt funds should be a signal to reduce the amount of investment that is situated with this type of investment rate. The rising rate is a pretty bad one for all investors that make investments for the debt funds of the investors. An increase in the interest rate of a particular investment scheme will cause a price available for bonds will fall which will in turn help to push down the possible net asset of debt funds.

READ: Company FD offer high interest rate than Bank FD

There is a need to avoid an increase in the interest rate by investing more in short term investment with quick and rising returns than in long term investments that can have a fluctuation in the possible gain available for the investment. As an investor who is profit oriented, you should avoid the investment on debt funds of rising interest rates because a continuous increase in this type of investment will not bring much profit to the investor.

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However, on the long time investment period, there will be a fall and rise in the interest of the investment scheme therefore making it unsuitable for profit-oriented investors. Therefore,  the very best solution is to invest in short term investments that have a period soon of about 2 to 3 years. This type of investment will allow the investor to make his or her gain as quickly as possible.

When there is an increase in the interest rates of the debt funds, the price pertaining to such an existing bonds falls which in turn helps in the accessing of the value for the debt funds. This will bring a lower return for the investor, therefore it is important that each and every investor should try all possible means to invest more on short term investment programmes. The short term investments may not really eradicate making losses, but it can help to easily get gains and profit from such investment as soon as possible.

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Harish Yadav

Finance and market analyst and chief writer on howtofinance. Passionate to read books and articles on marketing and accounting. Also edits other articles and publish them here.

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