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Business Standard
12-06-2025
- Business
- Business Standard
Avoid chasing yield blindly in scenario of falling interest rates
Following a 50 basis points rate cut by the Reserve Bank of India (RBI) on June 6, banks have lowered their fixed deposit (FD) rates by 25-50 bps. While investors should explore better-yielding options, they must not compromise on safety. Debt funds Debt mutual funds (MFs) have delivered better returns than FDs over the past couple of years amid softening rates. The repo rate now stands at 5.5 per cent. 'The RBI has suggested that there is not much scope for further rate cuts. This means the duration strategy, which has been performing for the past two years, may not yield the same kind of performance. Investors should now move to an accrual-oriented strategy — categories like money market funds and low-duration funds,' says Mahendra Kumar Jajoo, chief investment officer – fixed income, Mirae Asset Investment Managers (India). Devang Shah, head – fixed income at Axis Mutual Fund, also believes that long bonds have limited room to rally further. 'Rate cuts are likely to be limited — one or two — and that too only if there is a growth shock or if inflation moves even lower,' says Shah. A significant portion of the rally in debt funds was fuelled by liquidity infusion. 'As there is ample liquidity in the system, investors may consider incrementally shifting their investments into short- and medium-term funds,' says Shah. Debt-plus-arbitrage funds can potentially be a sensible option for investors. 'Investors with a minimum two-year horizon may consider this category. With such a horizon, it becomes a tax-optimal solution since investors get taxed at a lower rate of 12.5 per cent,' says Shah. Investors who are heavily overweight on long-duration funds should change their allocation. 'They should move gradually from duration to accrual strategy over the next three months,' says Jajoo. Dynamic bond funds may be retained, as their fund managers are likely to adapt to this environment by reducing the average maturity of their portfolios. Small savings schemes Small savings schemes carry no credit risk as they are backed by the Indian government. Some experts suggest going for Public Provident Fund (PPF, interest rate 7.1 per cent) and Sukanya Samriddhi Yojana (SSY, interest rate 8.2 per cent). 'Among small savings schemes, these are the only products that offer tax-free returns,' says Deepesh Raghaw, a Securities and Exchange Board of India registered investment advisor (Sebi RIA). Rates cannot be locked in for the entire tenure in these schemes. They are revised quarterly and could fall when they come up for revision at the end of June. If you wish to lock in rates for the tenure, consider post office deposits. 'If the interest rates on them are higher than on bank deposits, and if you can deal with the operational challenges that arise while transacting at a post office, go for them,' says Raghaw. Arnav Pandya, founder of Moneyeduschool, recommends the Senior Citizen Savings Scheme (SCSS, interest rate 8.2 per cent) in addition to the two products mentioned above. SCSS allow investors to lock in the rate for the entire tenure. But interest income from it is taxable. These schemes are suited for longer-term goals. 'All these three products serve specific goals. PPF is well suited for retirement savings. SSY caters to the needs of the girl child while the Senior Citizens Savings Scheme (SCSS) meets the needs of senior citizens,' says Pandya. RBI floating rate savings bonds These bonds carry no credit risk and may offer higher rates than FDs (8.05 per cent currently), especially for non-senior citizens. However, the interest is taxable and the rate cannot be locked in for the entire tenure. 'It offers an interest rate equivalent to National Savings Certificate plus 35 bps,' says Raghaw. He adds that rates of small savings schemes tend to be sticky on the downside due to political compulsions. Another drawback of these bonds is limited liquidity. Only senior citizens are allowed premature exit. Those above 80 may exit them after four years; those between 70 and 80 may exit them after five years; while those between 60 and 70 may exit them after six years. Corporate bonds Bond platforms now offer access to corporate bonds, many issued by non-banking financial companies (NBFCs). Many of them even now provide double-digit returns. However, these bonds also come with greater risk. Experts suggest doing due diligence on the entity whose bonds you plan to invest in. 'Many of the borrowers are small NBFCs that give out unsecured loans. They may offer you high interest rates, but the chances of defaults are also high,' says Pandya. He recommends focusing on established issuers. 'Individuals with larger portfolios, who are capable of taking some risk, may go for these bonds. First-time investors, those with smaller portfolios, and senior citizens should avoid them,' says Pandya. Raghaw also suggests sticking to AAA-rated bonds. 'Invest in listed bonds held via demat accounts. Invest only in bonds of marquee corporates. You may also go for PSU bonds,' says Raghaw. Finally, experts say that peace of mind should be the primary criterion when building the fixed-income portfolio. They caution against chasing yields blindly in a falling rate environment as it could result in loss of capital.
Time of India
12-06-2025
- Business
- Time of India
NFO Alert: Mirae Asset Mutual Fund launches funds focused on dynamic allocation and financial sector fixed income strategy
Mirae Asset Mutual Fund has announced the launch of new fund offers (NFOs) for two distinct funds, catering to evolving investor preferences in a dynamic rate and liquidity environment. The two new funds offer differentiated approaches— a dynamic strategy blending arbitrage and debt allocations and a passively managed constant maturity strategy focused on the AAA-rated financial services segment. The new funds are Mirae Asset Income Plus Arbitrage Active FOF and Mirae Asset CRISIL IBX Financial Services 9-12 Months Debt Index Fund. Mirae Asset Income Plus Arbitrage Active FOF is an open-ended fund of funds scheme investing in units of actively managed debt oriented and arbitrage mutual fund schemes, and Mirae Asset CRISIL IBX Financial Services 9-12 Months Debt Index Fund is an open-ended index fund tracking CRISIL-IBX Financial Services 9-12 Months Debt Index. Best MF to invest Looking for the best mutual funds to invest? Here are our recommendations. View Details » Also Read | Mutual funds reduces overall cash allocation by Rs 6,200 crore to Rs 2.17 lakh crore in May The new fund offer or NFO for Mirae Asset Income Plus Arbitrage Active FOF will open for subscription on June 16 and will close on June 30. The new fund offer for Mirae Asset CRISIL IBX Financial Services 9-12 Months Debt Index Fund will open on June 17 and will close on June 23. Mirae Asset Income Plus Arbitrage Active FOF will re-open on July 7 while Mirae Asset CRISIL IBX Financial Services 9-12 Months Debt Index Fund Scheme re-open on June 26. Live Events 'We are optimistic about the potential of the Mirae Asset Income plus Arbitrage Active FOF to adapt to diverse market environments. While on one hand, active allocation across debt fund categories will help deal with a volatile fixed income space, ability to opt for Arbitrage funds when it offers a better opportunity will be an additional feature' said Mahendra Kumar Jajoo, CIO – Fixed Income, Mirae Asset Investment Managers (India). 'The Mirae Asset CRISIL IBX Financial Services 9-12 Months Debt Index Fund offers a low duration, low credit risk strategy through a passively managed index approach. It tracks a basket of AAA-rated financial sector issuers including banks, NBFCs, and HFCs with 9–12-month maturities. With a roll down strategy and attractive term spreads in the sector, it offers a good option for accrual strategy orientation with a bit of capital gains possibility' said Amit Modani, Dealer -Fixed Income & Fund Manager, Mirae Asset Investment Managers (India). For both schemes, the minimum initial investment during the new fund offer will be Rs 5,000 with subsequent investments in multiples of Re 1 thereafter. SIP will be available starting from Rs 99. Mirae Asset Income Plus Arbitrage Active FOF The scheme seeks to deliver stable and tax-efficient returns through a dynamic allocation between arbitrage and debt mutual fund schemes based on macroeconomic outlooks. The allocation can range between 35% to 65% each in actively managed arbitrage and debt mutual fund schemes, based on a disciplined 3-step process analyzing interest rate trends, arbitrage spreads, and debt market signals. The portfolio will be assessed monthly, especially around futures expiry, to ensure optimal allocation based on prevailing market conditions The scheme aims to act as an all-seasons vehicle for investors seeking stability, moderate risk, liquidity, and tax efficiency. Also Read | JioBlackRock Mutual Fund files draft documents with Sebi to launch its first 2 debt schemes Mirae Asset CRISIL IBX Financial Services 9-12 Months Debt Index Fund The fund is designed to track the CRISIL-IBX Financial Services 9-12 Months Debt Index, offering investors exposure to high-quality Commercial Papers (CPs), Certificates of Deposits (CDs), and bonds issued by AAA-rated financial services companies such as Public Sector Banks (PSU) and private banks, Non-Banking Financial Companies (NBFCs), and Housing Finance Companies (HFCs). The index follows a constant maturity roll-down strategy, maintaining instruments with 9-12 months maturity, and benefits from the term premium and declining yields as securities approach maturity. The portfolio is diversified across issuers with no single issuer exceeding 15% and rebalanced semiannually. With a Modified Duration of 0.65 years and Yield to Maturity (YTM) of 6.44% (as of June 10, 2025), the fund offers a compelling low-risk investment for investors seeking income with low interest rate sensitivity.
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Business Standard
09-06-2025
- Business
- Business Standard
RBI rate cut: What it means for your money and how you should invest now
India's central bank, the Reserve Bank of India (RBI), on Friday made a bold move: it cut its key interest rate (the repo rate) by 50 basis points (bps)—from 6% to 5.50%. This was unexpected, and it's already creating a ripple across loans, savings, and investments. What is the repo rate and why does it matter? The repo rate is the interest rate at which RBI lends money to banks. When the repo rate is cut, banks can borrow cheaper, which means they usually: Lower loan interest rates (good for borrowers!) Lower fixed deposit (FD) rates (bad for savers) So a rate cut like this helps boost spending and borrowing, but reduces returns for those who rely on safe savings like FDs. What happened on Friday? RBI cut the repo rate by 50 bps (that's 0.50%). It also cut the Cash Reserve Ratio (CRR), giving banks even more money to lend. At the same time, RBI moved from an 'accommodative' to 'neutral' stance, meaning it's done cutting rates for now — unless the economy slows further. What does it mean for investors? 1. Loans are Cheaper Great news if you have a home loan or plan to take one. Your EMIs might drop by ₹300–₹600 or more, depending on your loan size. 2. FD Rates Will Fall Banks will cut fixed deposit interest rates. If you were earning 7% earlier, expect 6.3% or lower in the next few weeks. 3. Future Bond Returns May Be Lower Bond prices have already risen after the RBI move. There's less room for further gains, unless the economy weakens further. "Reduction in cost of funds (better NIMs) could mean lowering of borrowing rates thus reducing EMIs and leaving more surpluses in the hands of consumers that could in part aid discretionary spends," said Yogesh Kalwani - Head of Investments, InCred Wealth. Lower policy rates typically lead to higher bond prices (since yields fall). But because the rate cut was large and already widely anticipated, the bond rally has largely played out, limiting potential for future gains The 10-year government bond yield briefly touched 6.10% post-announcement but settled around 6.28%, reflecting uncertainty over future rate moves The market is now broadly anchored in a range of ~6.0%–6.3% for the 10-year yield unless economic conditions change dramatically Due to the policy rate cut and the proposed the CRR cut, short-term rates have come down by 15-20 bps. 'So, the impact is positive on short-term rates. But the long-term 10+ year yield has gone up a few bps, because there is a change in the stance to neutral, which indicates that there's isn't much likelihood of any further rate cuts. With interest rates at 5.5 percent, the market is already anchoring the 10-year yield about 75 bps above this, at about 6.25 percent. I am expecting 10-year yield get closer to 6 percent before it bottoms out,' said Mahendra Kumar Jajoo, Chief Investment Office–Fixed Income, Mirae Asset Mutual Fund. Here's where it gets interesting: Although a rate cut usually boosts bond fund returns, markets often react in advance. That's what's called 'pricing in the news.' As Dharan Shah of explains: 'Bond prices have likely already adjusted to reflect the rate cut. So the opportunity for major price gains is gone.' In simple terms: If you were already invested in debt funds or long-duration bonds, you probably saw your fund NAV rise. But if you're investing now, there might not be much more to gain — unless RBI cuts rates again. However, with the RBI now shifting from an 'accommodative' to 'neutral' stance, further rate cuts look unlikely in the short term. So, bond prices may not see big spikes anymore. "The aggressive frontloading of monetary easing, along with the change in monetary policy stance from 'Accommodative' to 'Neutral,' has increased expectations in the bond market that the RBI/MPC are either at the end or near the end of the rate-cutting cycle. While we believe the MPC will retain the status quo on policy rates over the next couple of quarters, further rate cuts cannot be ruled out if the growth trajectory does not pan out as per the RBI's forecast. Currently, the abundant liquidity and the attractive carry will be favourable for the shorter end (1–5 years) of the corporate bond curve, as spreads remain attractive in that segment. Some of the liquidity infused can be mopped up by the maturity of the short USD forward position of the RBI, though liquidity will remain in surplus and the SDF rate is likely to be the operational rate. We expect the yield curve to continue to steepen incrementally with elevated global bond yields and limited room for further monetary easing. The 10-year bond yield is likely to trade in a range of 6%–6.50% over the course of the next six months, with only a material downside to the growth and/or inflation outlook (which increases the prospects of further rate cuts) pushing the 10-year yield towards 6%," said Puneet Pal, Head-Fixed Income, PGIM India Mutual Fund. So, what is the catch with debt funds now? Many new investors are eyeing debt funds, especially long-duration funds, hoping to benefit from the RBI's surprise rate cut. But experts warn: 'The bond market has already priced in the cut,' said Shah. 'The scope for price gains is limited unless the RBI cuts again, which seems unlikely for now.' Even the 10-year government bond, which briefly dipped to 6.10%, rebounded to 6.28% as markets processed the RBI's shift to a neutral policy stance. So what does this mean? If you're already in debt funds, especially those with long-term bonds, hold on and enjoy the gains. If you're entering now, you may want to stick to short- or medium-duration funds, or corporate bond funds that still offer better 'carry' (regular interest income). "Investors with a 12–18 month investment horizon can look at corporate bond funds, as we expect corporate bond spreads to narrow owing to abundant liquidity and attractive carry. Investors with an investment horizon of 6–12 months can consider money market funds, as yields can continue to drift lower in the 1-year segment of the curve," said Pal. How should you invest now? If you are a conservative investor, your best bets now are: Short-Term Debt Funds / Money Market Funds: These invest in high-quality, short-term bonds. You get slightly better returns than FDs, with similar safety. If You're a moderate investor (Comfortable with Some Risk) Your best options: Corporate Bond Funds Offer higher returns than govt bond funds by taking a bit more risk. Choose funds investing in top-rated (AAA) companies. Dynamic Bond Funds These funds adjust to market conditions, so they can take advantage of both short- and long-term opportunities. Avoid: Long-term gilt funds — the rally may be over, and gains will slow. If You're a Growth-Seeking Investor (Higher Risk Appetite) You may look for higher returns, even if there's some risk. Options to explore: Hybrid Funds (Debt + Equity) – Good mix of safety and growth. Short-Term Equity Funds – If you believe the rate cuts will spur economic growth and corporate earnings. Credit Risk Funds – Higher yield potential, but go with caution and only if you understand the risks. "We suggest allocating upto 45% of fixed income portfolio towards accrual-oriented strategies. Consequently, we now revise our allocation to dynamic / long duration strategies upto 20% of fixed income portfolio. Credit environment continues to remain stable, and credit spreads remain attractive. Thus, balance 35% allocation of fixed income portfolio is suggested towards high yielding assets (bonds /funds," said Kalwani.
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Business Standard
09-06-2025
- Business
- Business Standard
Car, personal, home and biz loans to cost less as PSU banks slash rates
In a swift move following the Reserve Bank of India's (RBI) 50 basis point (bps) repo rate cut, four public sector banks—Bank of Baroda, Punjab National Bank (PNB), Bank of India, and UCO Bank—have slashed their repo-linked lending rates (RLLR) by an equal measure. The cuts, effective from June 6 to June 9, are set to make home, personal, and business loans cheaper for millions of Indians. Bank-wise Rate Reductions: Bank of Baroda: RLLR reduced to 8.15% from June 7 Punjab National Bank: RLLR down to 8.35% from June 9 Bank of India: RLLR slashed to 8.35% from June 6 UCO Bank: RLLR lowered to 8.30%, with an additional 10 bps cut in MCLR Private lenders such as HDFC Bank have also trimmed lending rates, albeit marginally, reflecting a wider industry trend triggered by the central bank's aggressive policy easing. What triggered the rate cuts? The RBI's June 2025 Monetary Policy announcement took markets by surprise as it cut the benchmark repo rate to 5.50%, citing persistent economic sluggishness and a need to stimulate credit growth. In a parallel move, the central bank also reduced the Cash Reserve Ratio (CRR) by 100 bps—from 4% to 3%—releasing an estimated ₹2.5 lakh crore into the banking system. What this means for borrowers The most immediate beneficiaries are existing borrowers with loans linked to the repo rate or external benchmarks. Home loan EMIs could fall by ₹300–₹600 per month on average, depending on loan size and tenure. However, new borrowers may not enjoy the full benefit. Bank officials suggest they may widen the spread over the repo rate to protect margins, especially amid declining deposit rates and growing cost pressures. Impact on savers and banks While borrowers gain, fixed deposit (FD) holders face another blow. Several banks have already begun slashing FD rates, with reductions between 30 to 70 bps expected in the coming weeks. Who benefits the most? Existing floating-rate borrowers (e.g., home loans linked to external benchmarks) will see instant savings as banks adjust these in line with the reduced repo rate New borrowers, however, may not get the full benefit because banks are expected to widen their spreads over the repo rate to protect profitability As a result, older borrowers might benefit more than new ones. Chirag Madia of Value Research explains what the rate cut means for your money: For borrowers, the rate cut is good news. Loan EMIs are likely to head lower. But as always, there'll be a lag before banks pass on the benefit. For savers, especially those relying on fixed deposits, the outlook isn't as rosy. With interest rates falling over 1 per cent since February, FD (fixed deposit) rates are set to drop further, not ideal for individuals, especially retirees, who depend on interest income. What debt fund managers are watching Bond experts think the RBI has frontloaded most of its support. Now that the stance is neutral, future moves will depend on how inflation and growth shape up. Mahendra Kumar Jajoo, CIO – Fixed Income at Mirae Asset, said, 'The 10-year benchmark bond yield, which has already inched down to around 6.20 per cent, remained largely flat. Most reaction was seen in the shorter end of the curve with money market rates easing further, extending to the 1–3-year corporate bond segment.' "For debt investors, short- to medium-duration funds are best placed to benefit in this phase. Equity investors may also find tailwinds from better consumption and corporate spending," added Madia. What should fixed income investors do? The short end of the bond market (1–5 years) is expected to do well because: There's abundant liquidity (banks have more money to lend). There's an attractive carry (higher yield compared to risk-free rate). In simple terms: shorter-term corporate bonds are offering good returns for relatively low you're a conservative investor, short-term debt investments are now better positioned. Longer-term bonds may offer stable but capped gains unless economic growth collapses. "Investors with a 12–18 month investment horizon can look at corporate bond funds, as we expect corporate bond spreads to narrow owing to abundant liquidity and attractive carry. Investors with an investment horizon of 6–12 months can consider money market funds, as yields can continue to drift lower in the 1-year segment of the curve," said Puneet Pal, Head-Fixed Income, PGIM India Mutual Fund.
