How to play the mutual fund investment in India, especially when it is a no brainer that rate cuts are nearby? Impending rate cuts have also opened up a great opportunity in a particular segment of mutual funds in India: gilt funds.  If you are looking at equity, banking stocks or bank ETFs also look a good bet now.

In fact, the Reserve Bank of India is behind the curve in slashing rates than other central banks. Now, it is a question of when the Indian central bank announces the rate cuts.  Already, investors have anticipated this move. News reports say that in October mutual funds in India saw a net inflow in gilt funds while equity funds saw a heavy outflow.

Gilt mutual funds invest in government securities. Since government securities carry the lowest rate of default, gilt mutual funds are secure. But gilt funds are subject to interest rate risks. If interest rate goes up, then values of securities in the portfolio of gilt mutual funds go down, thus negatively impacting the gilt funds. On the other hand, if interest rates go down, values of bonds go up, thus positively impacting the gilt funds. If you like to play in the gilts market, prefer short-term mutual funds in India that let you play at different stages of rate cut.