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  1. Fund managers expect investors to gain from short- to medium-term funds

Fund managers expect investors to gain from short- to medium-term funds

In its third bi-monthly monetary policy for 2017-18, the Reserve Bank of India (RBI) on Wednesday cut repo rate by 25 basis points to 6%.

By: | Mumbai | Published: August 3, 2017 3:52 AM
Reserve Bank of India, Edelweiss Asset Management Company, monetary policy, Sundaram Asset Management Company, maturity funds, fiscal deficit 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.

In its third bi-monthly monetary policy for 2017-18, the Reserve Bank of India (RBI) on Wednesday cut repo rate by 25 basis points to 6%. With not much clarity on further rate cuts, fund managers expect investors to gain from short- to medium-term funds having an investment horizon for one to three years. Since the start of rate cut cycle, RBI has cut the repo rate by 200 basis points to 6%. Dhawal Dalal, CIO (fixed income) at Edelweiss Asset Management Company (AMC), said, “I think the policy was on expected lines and the RBI has maintained a neutral stance, and even stated that, further trajectory of the monetary policy is data dependent. They have also said that inflation is likely to remain low but there are certain uncertainties around it, most importantly being monsoons and impact of farm loan waiver on fiscal deficit.” He also said there is space for one more rate cut in the ongoing financial year provided that the commodity prices remain low and inflation surprises us on the lower side.

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. Similarly, when there is hike in interest rates, the prices of fixed income securities come down. On Wednesday, the 10-year benchmark government securities closed at 6.46%. “We expect the yields to remain in the current range and be at 6.60% by the end of December. Currently, I don’t see any further rate cut in this financial year as RBI will be looking to lower inflation in a durable manner. Given this scenario, we expect investors would benefit if they look at short- and medium-term income funds,”said Dwijendra Srivastava, CIO-Debt at Sundaram Asset Management Company.

However, fund managers have cautioned that, sudden outflows from foreign investors would put pressure on the rupee and bond yields. “Outflows from the foreign players would be one factors and other would be geopolitical risks, which would have some negative impact on bond yields going forward. In this scenario, we advise investors to invest in three-five years average maturity funds with bend toward high quality of papers,” said another fund manager from leading fund house.

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