The Reserve Bank of India (RBI), in its second bi-monthly policy for the current financial year, kept the key rates unchanged.
The Reserve Bank of India (RBI), in its second bi-monthly policy for the current financial year, kept the key rates unchanged. Fund managers expects that investors will benefit from investing in medium to short term funds. However, with some global uncertainty, investors can also look at investing into dynamic bonds funds at this point of time, insists fund managers. Since the start of rate cut cycle, RBI has cut repo rate down by 175 basis points to 6.25%. A Balasubramanian, CEO at Birla Sun Life Asset Management Company (AMC) said, “I think RBI have continued their neutral stance and have recognised slow down. In order to bring back growth, I think we can see one rate cut of 25 basis points in this financial year. However for mutual fund investors, it remains stable scenario and given the situation investors can look at short term funds.” On Wednesday, 10-year benchmark government securities (G-Sec) closed at 6.57%. “Given the current situation we see chances of one rate cut going forward. In this scenario, it is always advisable to invest in either dynamic bond funds or short-term income funds,” said Mahendra Kumar Jajoo, head, fixed income at Mirae Asset Global Investment (India) Ltd. He also added that, 10-year yield will come down in the range of 6.25% by the end of the current financial year. 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.
Some industry players also think that dynamic bonds funds are best bet during the current times. “Dynamic bonds funds invests in mix of government as well as corporate paper. These funds also change the maturity of the portfolio and the investment mix depending upon their outlook on interest rates and inflation. While pure gilt funds are directly aligned with benchmark interest rates and investors might witness volatility given the duration of the products,” said a debt fund manager from a top fund house.