On September 30, 2022, the RBI increased the repo rate once again, by 50 basis points, in an effort to curb inflation. From April's 4.0% to today's 5.9%, the repo rate has risen four times in a row.
It's not just India, all around the world interest rates have been increasing to fight inflation. And this is causing havoc in the markets.
But, there’s still an opportunity to get rich! Here’s a strategy to make money from rising rates, using bonds.
Why Bet On Debt? 💲
The use of debt is crucial to a diversified investment strategy. It can generate regular income and provide attractive investment opportunities, especially when real (or inflation-adjusted) interest rates are above long-term averages
It can act as a cushion during periods of significant market volatility, holding steady or falling substantially less than equity (such as 2008-09, early 2020, etc)
Unlike fixed deposits, debt markets react quickly to changes in interest rates. This provides you with an opportunity to invest at a higher rate, eventually gaining more
Short Is Better 😉
Two things have been happening since the last year which has caused shorter-term bonds to perform much better than longer-term bonds.
Economic downturn, resulting in the flattening of the yield curve (in India) and an inversion of the yield curve (in the US)
In normal circumstances, long-term investments have higher yields because investors are risking their money for a longer duration
However, when the yield curve flattens, there’s not much of a difference between yields on short and long-term fixed-income investments. And when it inverts (like it did in the US), shorter-term investments give higher yields
This happens when the market loses confidence in the long-term outlook, and shorter-term bonds do well
Increased interest rates by the RBI to control inflation
One basic norm with bonds is that when yields rise, bond prices fall; and vice versa. So, when interest rates rise, yields shoot up, and prices fall
But, when interest rates rise, the prices of longer-term bonds fall more than the prices of shorter-term bonds
When the tide turns again, and when the central bank starts to cut rates, it would make more sense to switch to longer-maturity bonds
Um, I kinda get it 😖
The only problem is keeping track of all this is not the easiest thing to do. What if there was a way to participate in these gains without having to do the cumbersome research and all the headaches that come with it?
Is there a way? Of course, there is!
The All-Weather Portfolios by Rupeeting invest in a mix of 4-5 asset classes. Our experts keep track of such changes in the market and optimize the portfolios so you as an investor don’t miss out on such opportunities.
For example, before RBI started raising rates,
We had moved our exposure from 10-year government bonds to 5-year government bonds
We had also added corporate bonds so that we are able to scrape some additional returns in this increasingly difficult scenario
And both these decisions worked wonderfully!
All you need to do is invest and let us take care of the rest!