Investment options in a rising interest rate regime

The rate hike for repo and reverse repo of 50 basis points ( 100 basis points is 1% ) was received by the market with a bit of shock, as they were hoping for a 25 basis points hike.

This announcement will send some cheer to investors of Fixed income securities like Fixed Deposits (FD). In the recent months only, FDs have been giving 9-10% returns.  Now, this rate hike would mean further increase in the interest rates that FDs offer. It may take some time for that to be transmitted through the banking system.

Coming to those with loans, it could be difficult times ahead. The loans, most of which are floating rate loans these days, will all move up by 0.5% and will put pressure on the borrowers. The bad news is that the rate hikes are not over yet, if one were to look at the inflation situation in the country, commodity prices across the globe and crude oil prices in particular (which has linkages across all sectors of the economy).

Now coming to debt funds, these are times when investors have to be careful as to what they pick up for investment.  Investors would know the inverse relationship the interest rates have with the fund performance (NAV). This can be explained with an example. Let