Best Mutual Funds to Choose After the RBI Repo Rate Hike
It’s everywhere in the news now! RBI Monetary Policy Committee has raised its benchmark points by 25 basis points. The rise is seen for the second time this year; however the critical question is, will it bring in some major changes for our mutual fund investors?
Read this blog to the end to find out all the answers. All the vital points such as what Repo rate hike is, its impact on mutual fund market and investors, significant reasons responsible for the same, what our investors can expect in future, etc., are covered here. As we proceed, we will suggest some of the best funds that one can choose to invest in now in the hope of better returns.
So, let’s begin!
What Is Repo Rate Hike?
Repo Rate is the rate at which commercial banks borrow money from the central bank or RBI in case of fund shortage. It is a process which is used by the Reserve Bank of India to monitor inflation. The hike in Repo Rate ultimately reduces the money supply in the economy, thus helps in controlling inflation.
What were the Reasons for this Second Hike in FY 2019?
The RBI repo rate hike is not a big surprise for many, markets were anyway expecting it. Still, there are some of the reasons responsible for guiding it, including:
- Regular inflation hardening, especially the core inflation
- RBI’s resolve to stay ahead of the curve and instead err on the side of caution
- A sharp rise in Kharif MSP
- Loose fiscal policies
- High crude oil prices
- The relative weakening of rupee, which is inflationary
How Can it Affect Your Mutual Fund Investment?
A rise in repo rate is not good news for debt mutual fund investors, especially the ones who have invested in long-term debt schemes. The long-term debt schemes invest in debt instruments with higher maturity which gets badly hit whenever the interest rates rise in the economy. The yields and prices of bonds are inversely related, and this is the reason why the NAV of such schemes fall whenever the interest rates spike.
What Should Our Investors Do?
Experts at MySIPonline suggest that investors should continue to invest in short-term debt schemes and credit opportunity funds. Those who can stomach in volatility in the short-term can even prefer investing in long-term debt schemes and gilt schemes but only if they have a long investment horizon.
Further, if you can understand the risk associated with the credit risk funds, for they invest in the lower quality papers to generate better profits, then opt for investing in them. Otherwise, corporate bond funds (which invest in quality and sound companies) should be your pick. The investors who want to lock-in their investment amount for certainty can even go for fixed maturity plans.
Top Short-Term Debt Schemes to Invest in After Repo Rate Hike
- Franklin India Short Term Income Plan (G)
- Axis Short Term Fund (G)
- L&T Short Term Bond Fund (G)
- ICICI Prudential Short Term Fund (G)
With our analysis, we believe that investors will not see much instability in the markets due to a rise in Repo points. Thus, corporate bonds look attractive investment option from the current levels because of the absolute returns that they generate and their steep yield curve. For a personalized recommendation on this, consult our financial experts or customer support executives any time as per your convenience.