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RBI announcements will strengthen bond market, what should mutual fund investors do?

Bond Market: The central bank also announced measures to increase liquidity in the system.

Debt Mutual Fund: In the year 2020, there has been no change in the repo rate for the second time in succession after cutting the 115 basis points. Repo rate will remain at 4 percent as before. At the same time, CRR remains at 3.35 percent, bank rate 4.25 percent and cash reserve ratio at 3 percent. While interest rates remain low, the central bank also announced measures to increase liquidity in the system. RBI will buy government bonds through OMO next week. At present, measures have been taken to keep the bond market stable through liquidity measures. After all, what do these measures of RBI mean for mutual fund investors?

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2 big announcements

RBI has taken 2 major measures like OMO and LTRO. RBI will buy government bonds through OMO. The goal of RBI is to add liquidity of 20 thousand crores to the system. The 10-year government bond yield has reached 5.92 per cent now. It will further decrease after the Rs 20,000 crore OMO.

At the same time, RBI has announced the on-tap TLTRO. Its purpose is to open banks’ hands to give loans. Through this scheme, banks will be arranged to borrow up to 1 lakh crore rupees. This fund can be used to invest in corporate bonds and other debt instruments of some sectors.

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Positive for the bond market

Liquidity measures taken by the government are positive for the bond market. Such measures are expected from RBI even ahead of the market. RBI has kept its stance soft. Therefore, further cuts in rates can be seen in the coming days. Today, even in the policy announcement, it has been said that if needed, RBI will take all possible measures. This will affect the bond yield in the near term. The benefit of this is expected to reach debt mutual funds.

AK Nigam, director of BNP Fincap, says that these measures of RBI will definitely have a positive impact on the bond market. He says that RBI has done a lot to stabilize the financial condition and bring liquidity in the system. It has been said that 20 thousand crores will come in the system. These measures of the government will also increase stability in the debt market. The funding channel will help in maintaining the operation and will also help in reducing financial clutter. But it is a matter of keeping in mind that when the money comes in the system, it will not only benefit the debt market, but also the equity. Therefore, investors should focus on both categories.

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Which scheme is the best?

He says that debt funds are seeing better long-term schemes than mid-durations right now. Apart from this, the focus should be on government bonds. Apart from this, banking and PSU funds are also looking attractive, as they are considered safe. But here shopping cannot be done completely blindly. Keeping in mind the safety before investing, check the high-quality papers.

At the same time, multi-cap equity fund is still the first priority in equity. Apart from this, you can choose the best scheme in LogCap. However, investors in equities have to keep an investment perspective for at least 5 years.

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Source: www.financialexpress.com

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Shehnaz is a Corporate Communications Expert by profession and writer by Passion. She has experience of many years in the same. Her educational background in Mass communication has given her a broad base from which to approach many topics. She enjoys writing about Public relations, Corporate communications, travel, entrepreneurship, insurance, and finance among others.
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