InvestorQ : How will the recent RBI decision to cut rates by 75 bps impact my debt fund portfolio? Will I benefit from the rate cut?
Mahima Roy made post

How will the recent RBI decision to cut rates by 75 bps impact my debt fund portfolio? Will I benefit from the rate cut?

Answer
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Aashna Tripathi answered.
7 months ago


RBI has cut repo rates by 75 bps to 4.4% and the reverse repo rate by 90 bps to 4%. The CRR was slashed from 4% to 3%. Investors in debt funds either look for liquidity and capital protection in overnight mutual funds or stability of returns from shorter duration funds or higher returns from long duration funds. Let us see how they will be impacted. The rate cuts and liquidity boost will lead to reduction in yields at the shortest end of the curve. Overnight mutual funds will see lower returns. However, longer duration funds invested in government securities are most likely to benefit from the rate cuts as the price appreciation will be the maximum in these segments. However, the credit risk funds will not really benefit from these rate cuts. The COVID-19 and the anticipated economic slowdown are likely to create solvency risk for the bond issuers and that could work against them.