InvestorQ : Which debt funds should I invest in now that the RBI has cut repo rates?
Isha Tharwani made post

Which debt funds should I invest in now that the RBI has cut repo rates?

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Anusha Savla answered.
2 years ago
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As a rule, remember that in times of softening interest rates, one must opt for long-term debt funds and during tightening interest rates, one must opt for short-term interest rates.

Given the RBI’s two consecutive rate cuts and expectations of further rate cuts, experts expect bond yields to fall, thereby aiding existing investors earn better returns on their long-term funds.

For your understanding, please note that bond prices and bond yields have an inversely proportional relationship. This means that bond yields lowering means the bond prices will increase. Thus, from an investor point of view, you must welcome lower bond yields.

As there is expectation that the repo rate could be lowered by 50 basis points in 2019-20, long-term debt funds are the way to go right now.

Fund managers are of the view that the yields of the three-, five- and ten-year bonds could decrease by 50-75 basis points (bps) in the medium term.

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