India: Income funds: Quantifying the risk.

IN an interview with Business Line, Mr Nikhil Khatau of Sun F&C Mutual Fund said that there is risk for investors only if they take a view of less than nine months when investing in income funds. Mr Khatau had based his calculations on a 25 basis point rise in interest rates.

He also indicated that if rates rise initially by some percentage it would be taken as a signal for investors to reduce the average maturity of the funds. This would thus reduce the sensitivity of the portfolio to further increases in interest rates.

Does Mr Khatau's argument suggest that investors should not worry if they are going to invest for the longer term? Not necessarily.

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