US Federal Reserve signals interest rate cuts in 2024 second half: Should you invest in debt funds?

livemint.com:

cutting interest rates in the second half of this year. The RBI is also expected to follow the US Fed by cutting interest rates. Let us understand whether this is a good time to invest in debt funds.

Interest rates and bond prices have an inverse relationship. So, when interest rates go down this year, the bond prices are expected to rally. It will lead to capital gains for investors holding these bonds.

Also read: Mutual fund investing: 7 debt funds delivered maximum returns in the past ten years In March, the US Fed Chairman Powell said in the post FOMC meeting news conference: "We believe that our policy rate is likely at its peak for this type of cycle, and that if the economy evolves broadly as expected, it will likely be appropriate to begin dialling back policy restraint at some point this year".

So, the Chairman indicated that interest rate cuts are expected this year, depending on the economic data. The Fed dot plot projects 75 basis points (expected to be three interest rate cuts of 25 basis points each) interest rate cut in 2024. Similarly, interest rates are expected to be cut by 75 basis points in 2025 as well as in 2026.

You can benefit from the fall in US interest rates by investing in mutual funds that further invest in US bonds. In India, as of March 2024, two AMCs offer an opportunity to invest in US Treasury Bonds. Bandhan Mutual Fund offers one scheme, and Aditya Birla Sun Life Mutual Fund offers two schemes.

1) Aditya Birla Sun Life US Treasury 3-10 Year Bond ETF FOF: The scheme invests in the units of ETFs that invest in US Treasury Bonds with a maturity between 3 to 10 years. The scheme is appropriate for investors who want to invest in US Treasury Bonds with a higher tenure. The higher the bond