The RBI has increased the repo rate by 50 bps over the last year. Rise in interest rates generally cause bond prices to fall, which in turn pushes down the NAV of the debt funds, giving lower returns to the investors. The interest rate changes impact long-term debt funds more that short-term debt funds. The table below shows the performance of the debt funds.
| Fund Category | 1 month return | 1 year return |
| Liquid Fund | 0.36% | 6.66% |
| Short duration Fund | 0.47% | 4.46% |
| Medium Duration Fund | 0.43% | 3.66% |
| Long Duration Fund | 1.39% | 0.78% |
| Gilt Fund | 1.23% | 0.57% |
Source: Value Research, 17th October, 2018
Also, the IL&FS downgrade in the last month has affected the performance of the short-term debt funds. The table below shows the short-term funds with the highest exposure to IL&FS.
| Name of the fund | 1 month return |
| Principal Cash Management Fund | -6.80% |
| Motilal Ultra Short Term Fund | -4% |
| Principal Ultra short Term Fund | -2.90% |
Source: Money Control, 17th October, 2018
