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Where to invest in debt in a rising interest rate regime

Fixed deposits may look attractive now but gilt funds are also a low-risk option that could offer higher returns than FDs

January 26, 2023 / 09:39 AM IST
With markets under pressure because of a looming global recession, debt offers good options to lock-in a high rate of interest for medium to long term. (Representative image)

With markets under pressure because of a looming global recession, debt offers good options to lock-in a high rate of interest for medium to long term. (Representative image)

After a low interest rate regime during COVID, the rates have been on an upswing as Reserve Bank of India (RBI) takes steps to tame inflation. In line with the interest rate hikes by RBI, banks/Non-Banking Financial Companies (NBFCs) as well as insurance companies/corporates have raised their rates on fixed deposits (FDs) and investment schemes.

The debt instruments are back in favour as even stock markets generated negative real returns in the last year. With markets under pressure because of a looming global recession, debt offers good options to lock-in a high rate of interest for medium to long term.

A Range of Offerings: So choose wisely

Many options are available to investors ranging from bonds/debentures to FDs of Banks/NBFCs/Corporates to annuity schemes of insurance companies to saving schemes for senior citizens to debt mutual funds. An individual shouldn’t just consider the interest rate/rate of return while investing in debt instruments. Other factors such as liquidity, credit risk, taxation, etc. should also be considered.