US Federal Reserve is meeting tomorrow to decide on the interest rate hike. According to some investment experts, an interest rate hike in the US is supposed to take the wind out of the Indian markets. Should Indian investors worry?
“There might be an immediate reaction in the stock market. But it will be for an extremely short period of time,” says Devendra Nevgi, CEO, ZyFin Funds. He says the equity market is unlikely to react in a big way because of two reasons. One, the market has already factored in this hike. Two, the markets tend to react more on domestic factors.
That means equity mutual fund investors can go on with their lives and continue with their equity mutual fund investments.
“A rate hike of 25 basis points is already factored in the markets and there won’t be any major reaction,” says Mahendra Kumar Jajoo, Head -Fixed Income, Mirae Asset Global Investments (India). Interest rate hike by US Fed is likely to cause outflows from emerging markets, including Indian. However, this rate hike is very much anticipated, so there is no reason to worry, adds Jajoo.
Jajoo says investors should invest in dynamic bond funds with a horizon of three years and above in the current scenario. “You can also consider starting an SIP in a bond fund to tackle volatility,” he adds.
Investors who have already invested in long-term bond funds should stay invested as the macro economic factors are strong and the interest rates are likely to come down next year. “We are expecting a rate cut by RBI in the coming quarter,” says Nevgi.
“Stay invested, especially if you are with a quality long-term fund,” says Jajoo.
However, if the Fed decides to hold rates, the scenario may be completely different. “If there is a status-quo (no change in rates), the long term bonds will rally,” says Nevgi. Needless to say, that would cheer up investors in long-term debt funds. “It is unlikely, but if it happens, long term bond mutual fund investors will benefit more than the short-term ones,” he adds.
Finally, you should remember that such major events often do not leave a lasting impact on your investment journey. Think of Brexit, Trump presidency, etc. The markets might have reacted with horror on that particular day, but it recovered in no time. In fact, if you look back at those days after a 10 or 15 years, it would seem a small blip on the index. Pick mutual fund schemes with a good performance record and keep investing as per your plan irrespective of the short-term market trends.
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