1 week Ago By Avijit Ghosal
In order to boost economic growth, the Reserve Bank of India on April 9 announced a reduction in Repo Rate by 25 basis points, bringing it to 6%. In this climate long-duration funds, dynamic bond funds and gilt fund could be in demand. Kolkata: Reserve Bank of India has announced an immediate reduction of Repo Rate by 25 basis points, which takes the total cut of the key policy rate to 50 basis points since February 2025, firmly setting country’s interest rate curve on a downcycle.
Experts are saying this is the time to invest in long duration funds. Let’s see how can investors capitalize on the recent developments following the MPC (Monetary Policy Committee) meeting this week. Long duration funds are a type of debt mutual funds.
These basically invest in bonds and other fixed-income securities that have long maturity tenures and exceed seven years. Experts say that these funds aim for higher returns by taking advantage of interest rate fluctuations and these are more sensitive to changes in interest rates compared to shorter-duration funds. What are dynamic bond funds Recommending dynamic bond funds, one of the fund managers have said that these mutual funds are optimally positioned to capitalise on the prevailing stage of the monetary cycle.
Significantly, dynamic bond funds are a category of debt mutual fund which, as the name suggests, adjusts the duration of their bond portfolio based on interest rate expectations. Managers of dynamic bind funds strive to take advantage of interest rate movements and they typically improve returns when interest rates drop and/or mitigating risks when interest rates keep rising. Almost all AMCs such as ICICI Prudential, HDFC, SBI, PGIM India, Aditya Birla Sun Life, UTI, Baroda BNP Paribas, DSP, Canara Robeco, Kotak, Quant have dynamic bond funds in their stable.
Long tenure FDs While the rate cut has already amounted to 50 basis points in the past two months, it is going to add about 75 basis points more this FY, experts have pointed out. While declining interest rates have an immediate downward pressure on lending rates, they also mean a declining interest income for FDs since banks will also pull down those rates. Therefore, this is the very last hour when one can lock in long-term FD rates.
If anyone has got a surplus to invest in fixed income securities one can consider long-maturity FDs since rates on these could be dipping any day. This will help them earn higher FD yields in the declining interest rate regime, experts are saying. (Disclaimer: This article is only meant to provide information.
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Avijit Ghosal has been writing on topics of business, industry and investment for the past three decades. He also writes on the broad economy, infrastructure and issues in banking. He has worked for economic dailies such as the Business Standard, The Economic Times, business magazines such as Business Today, English broadsheet the Hindustan Times and Bengali daily Anandabazar Patrika before joining TV9 Network.
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