Medium & Short Duration Bond Funds!

After the removal of long-term capital gains & indexation benefits, many consider debt funds on par with FD’s. However historical data shows that debts funds have outperformed bank FDs over the long run and produce inflation beating returns. In the current scenario when interest rate has peaked one can consider investing in Medium Duration Funds (MDF). As the FED & RBI has started cutting rates, MDFs are best placed to give superior returns. Conversely when interest rates are rising, Short Duration Funds (SDF) are a better choice. SDFs invest in short duration bonds which are less sensitive to interest rate movements. Besides the proceeds of short maturity papers can be reinvested in bonds with higher yields. Always remember bond & interest rates have an inverse relationship. When interest rate falls, bond prices rise & vice versa.