The expectation that interest rates in India will stabilize and then subside over the first half of calendar year 2012, has given rise to a good opportunity for risk averse investors to invest in debt funds. Not only risk averse investors, but also people who are usually fully invested in equities, would do well to put some of their money in them.
Historical Returns
In the past,October 2008 to January 2009, when RBI cut the Repo rate by 3.5% from 9% to 5.5% with WPI inflation trending down from 11% to 1%. The Gilt-Medium and Long Term category funds appreciated to 19% compounded return while Income Category increased by 11%.
My Personal Bets
My recent additions in this category are Pru ICICI Gilt Fund and Birla Sun Life Dynamic Bond Fund (G) in these two categories. I expect the gilt fund to do better than the income one, and so have a 60-40 split between them. Return expectation is about 12-14% in a year's time.
