InvestorQ : Interest rate futures (IRF) have been around for quite some time, then why have the volumes not really picked up for IRFs in India?
Deepa Salunkhe made post

Interest rate futures (IRF) have been around for quite some time, then why have the volumes not really picked up for IRFs in India?

Answer
user profile image
Juvina Maggie answered.
11 months ago


IRFs are still work in progress and it would take some more time. Here are few reasons why IRFs have not taken off in a big way in India.

· Interest rate risk is still not so well understood risk in India as equity price risk, default risk and volatility risk. Most traders and investors still equate government bonds with absolute safety and hence don’t understand the concept of hedging their interest rate risk.

· The concept of hedging loan risks with IRFs is yet to take off in a big way in India. That is where the potential lies and that is what needs to be marketed as a business solution to the customers.

· Retail holding in government securities is still too limited and hence the need for retail investors to hedge risk is not seen today. That has limited the participation in this market substantially.

· Bond pricing in India is still not to efficient due to a restricted bond market and controlled interest rates. Till this issue resolved and the yield curve develops, IRFs may face challenges for now!

Hopefully, once these challenges are addressed, the IRFs should become a lot more popular method of managing interest rate risk in India.