“Small and mid-scale businesses, consumers and loan seekers will be substantially impacted by the RBI’s rate hike as it will result in the levy of higher interest rates on loans. The small-cap funds will also see an underwhelming response from the loan takers. The overall budgets and savings of an average investor will be in a criss-cross as they will be forced to pay a higher interest rate on a home loan or personal loan,” Pramod Chandrayan, Co-Founder and CPO, FinMapp said.
How the RBI rate hike will affect mutual fund investments?
Anand Dalmia – Co-founder and Chief Business Officer – Fisdom said the primary implication of the rate hike is a tighter monetary environment where liquidity is not as buoyant and borrowing is no longer cheap. In most cases, companies sporting debt-heavy balance sheets will experience pressure on profits as interest costs soar. This, along with deeper discounting of future cash flows can be expected to affect valuations for many. Equity mutual funds having exposures to such sensitive companies will experience an adverse impact on net asset values.
“On the fixed income mutual fund side, funds with long-tenure securities and long-term gilt funds will be affected negatively. Even as the market adjusts to the policy reversal, managing the debt portfolio towards the shorter end of the curve and staggering deployment should be an ideal approach in most cases,” he added.
“ The mutual fund industry will also be in deep water as the investors will be demotivated to seal in fresh money in mutual funds,” said Pramod Chandrayan.
Under such conditions, very large companies that have very little debt are likely to do well. It means your large cap mutual funds are likely to perform better in the near future.
“If you have investments in small cap companies, be prepared to face some volatility and losses. If your mid cap scheme also may face rough weather. Sadly, most of these companies also face…
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