Debt mutual funds stand to gain from declining rates: Experts
New Delhi: Following RBI's decision to lower its key rates for first time after nine months and hopes for further cuts in coming months, mutual fund experts are of opinion that investors should move part of their assets into income funds to benefit from a falling interest rate scenario.
Income funds are mutual fund schemes that emphasise on current income, either on a monthly or quarterly basis by investing in government as well as corporate debt securities.
"Investors should consider investing in income funds with long duration to benefit from the possible decline in interest rates in the next three months," said Dhawal Dalal, Executive Vice President and Head of Fixed Income at DSP BlackRock Investment Managers.
After a long gap of nine months, RBI yesterday reduced the short-term lending rate by 0.25 percent and decided to release Rs 18,000 crore of primary liquidity.
Arvind Chari, Senior Fund Manager (Fixed Income) at Quantum Asset Management Company said: "We expect 10 year bond yields to remain range bound in February and move lower towards the March policy in expectation of the rate cut in the March quarterly review."
The 0.25 percent CRR cut and government spending would address the liquidity tightness and further tightness would be addressed through Open Market Operations (OMOs), he added.
Lakshmi Iyer, Senior Vice President and Head, Fixed Income, Kotak Mutual Fund said: "While the 25 bps cut in repo was expected, its realisation has provided a palpable relief to the markets...We may continue to see further rate reversion going forward, so as to better measure the fiscal impact on the economy."
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