RBI policy: Invest in short-term and credit opportunities mutual fund schemes
The Reserve Bank of India has once again kept its key rates unchanged in its policy review today.
"This is a very positive policy decision. After the government borrowing less, this will push the debt markets further. As I said, RBI is in a extended pause with the policy rates. We are not expecting any change in policy rates immediately," says Lakshmi Iyer, CIO -Debt and Head-Product, Kotak AMC.
The government had announced that it would borrow only about 48 per cent of the overall target for the financial year from the bond market up to September. Normally, the government proposes to complete 60 per cent of the targeted borrowing in the first six months.
The decision surprised the bond market. The market participants were expecting higher borrowing for the first half of the financial year. The 10-year bond yield dropped to as much as 7.35 percent from 7.62 percent, its lowest since Jan. The benchmark bond yield surged to as much as 7.77 per cent in February. The bond yield today stands at 7.19 per cent.
The apex bank has also cut the CPI inflation outlook to 4.4 per cent. "The yields have already rallied because of the change in CPI inflation but the overall the outlook is positive for the markets. Many in the market are also expecting a rate cut in the upcoming policy reviews but I don't think there will be any change in the policy rate immediately," says Lakshmi Iyer.
This means debt mutual fund investors do not have to make any changes to their investment strategy. Mutual fund advisors have been asking debt mutual fund investors to stick to short-term debt schemes for some time now. They argue that it is safe to stick to short-term schemes when there is a chance of a rate hike by the Reserve Bank.
"Our recommendation remains the same. Short-term funds and Credit opportunity funds are the best places to stay invested," says Lakshmi Iyer.