Should you liquidate fixed income investment post RBI move?

Below is the verbatim transcript of Roongta's interview with CNBC-TV18.

Q: How Reserve Bank of India's move will impact the small investors; a lot of them would have moved into debt mutual funds, fixed income funds in the past six months when the feeling was that it will give returns. What happens to them, should they move out, should they stay put?

A: We have seen some more measures being implemented last evening wherein the sole objective is to suck out the liquidity, which is there in the system. Once this liquidity is going to be out of the system the rates are going to move up.

We have already seen in the last few weeks that the 10-year benchmark yields have gone up by about 70-80 bps and it is at about 8.3 currently. The hike in the rate is having a negative impact on the debt funds. So, all those people who have currently been invested into debt funds are already experiencing negative return even from liquid fund and the situation doesn't seem to get better in the coming days. We had a view some time back that we take a wait and watch situation and will take a call if there is any development in the next couple of weeks.

However, currently there are two options; one, liquidate from all the debt funds because it is still going to see some pressure, if not weeks, its going to take some time before it stabilises. The other option available today is that since the rates are in upward movement, it is probably a good time that a retail investor locks in his investments at fixed coupon rate instruments. If you look at the non-convertible debentures which are listed on exchanges, one will get good return and the coupon rate is fixed. When one invests today, he knows exactly what he is going to get till maturity.

So, the idea is that at this moment retail investor should definitely look at either non-convertible debenture listed on the exchange or lock in debt assets into fixed deposits. These would be a good thing to do at this moment and not expose oneself to the volatility which has been experienced by the debt funds.