How an Individual Investor can minimize the impact of increasing RBI Rate Hikes?

2 min read

The Central Bank of the Nations across the globe is adopting the method of raising interest rates to combat the high inflation conditions. So, let discuss what are the impact of these rate hikes upon retail investors and how an individual can minimize the impact of rising interest rates.

Ways to Minimize the Impact of Rising Interest Rates:

1) Tracking and Repayment of Active Loans:

  • Most of the loans available like Home Loan, Personal Loan, etc. are floating debt where the interest rates on the loan will rise following the rising interest rate scenario.
  • In this case, one should always track the interest rates of the active loans. And also should try to repay the loans if possible as rate hikes impact interest costs.

2) Maximization of Returns on Savings:

  • An individual should try to maximize their returns on their savings during this rising interest rate scenario.
  • Now during this time, one can invest or increase their allocation in debt funds and highly into high duration funds, if the fund is not required in the next 6-8 months.
  • Interestingly if India’s 10-Year G-Sec Yield crosses the mark of 8%, then it will be a good time to invest in these bonds for a long duration as here the credit risk is quite low.

3) Postpone Purchases Planned on Leverage:

  • During this rising interest rate scenario, one should try to postpone the plan of purchase, if the plan is mostly dependent on a loan.

4) Calculate the inflation of monthly expenses:

  • It is the most important point as with high inflationary conditions of the commodities, there has been a greater impact on the pocket of the final consumer. Hence, one should have a close eye on their monthly expenses and how much expenses have been raised against the expenses of the last year during the same period.
  • If necessary and possible, an individual should try to cut down some of their expenses to mitigate the impact of inflation.

5) Asset Allocation- Portfolio Rebalancing:

  • The rising interest rate scenario and high inflationary condition of raw materials, squeeze the margins and profitability of the company wherein the stock market gives subdued or negative returns as well.
  • Hence, during this time, portfolio rebalancing of the asset classes is a good time.

What Should Investors Do?

At the current higher and rising interest rate scenario, individual investors should go through several ways to mitigate its impact on their pocket as well as financial goals. Above discussed measures are some of the important points which can help the individual to mitigate the impact of the rising interest rate.

Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.

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