Debt Funds to Buy After RBI Hints No Rate Cut Likely Soon
Mumbai: The change in the Reserve Bank of India’s stance from “accommodative” to “neutral”sentbondyieldssoaringlastweek, leading to a massive fall in NAVs of debt funds. The average medium-term and longterm bond fund fell 2.5% in two days, wiping out the gains of the past two months. Other categories such as dynamic bond funds, income funds and short-term debt funds also fell, though the decline was not as steep.
In simple English, an “accommodative” stance implies that the RBI may cut rates in thefuture.Thathasnowturnedto“neutral”, which means the RBI may keep rates stable and future rate cuts are possible only if inflation or growth are lower than expected.
Fund managers say this will change the outlook for the bond market and debt funds. “We don’t expect any repo cut for a long time, unless some sudden developments warrant such a cut,” says Kumaresh Ramakrishnan, head, fixed income at DHFL Pramerica Mutual Fund.