In the first bi-monthly monetary policy statement of 2016-17, the Reserve Bank of India (RBI) on Tuesday slashed repo rate by 25 basis points (100 basis points=1%) to 6.50%. Fund managers expect that investors will benefit from investing in short- and medium-term funds having an investment horizon of 18-24 months. However, investors having longer view should continue to look at investing in long-term income or gilt funds, insists fund managers.
“Though we don’t expect any more rate until monsoon gets over, it is advisable for investors to look into short tenure debt funds. But investors who wants to get into long term debt products should know that, such funds are directly aligned with benchmark interest rates and investors might witness volatility given the duration of the products. They should invest in longer duration funds only they have investment horizon of more than three-five years,” said a debt fund manager of condition of anonymity.
The prices of fixed income securities are governed by interest rates prevailing in the markets. Interest rates and price of fixed income securities are inversely proportional. When interest rates decline, the prices of fixed income securities increase.