Скачать или смотреть Repo rates cut, bond prices to rise! RBI Policy rate cut explained!

Repo rates cut, bond prices to rise! RBI Policy rate cut explained!

If you are an investor in Debt Mutual funds, this is a good news for you.

Today RBI has yet again cut repo rates and this time, by a whopping 50 basis points. So now the repo rate stands at 5.50%, which just 6 months back was at 6.50%, then twice there was a 25 bps cut and today a 50 bps cut getting it to 5.50%.

Now this is a good news for debt mutual funds, because interest rates and bond prices have an inverse relationship, which means that as the interest rates fall, which is what happened today, the bond prices go up. Because the interest rates went down but the bonds that you hold carry the same higher interest rate.

so the investors will be more attracted to the older bonds carrying a higher interest rate, and the demand for these bonds will increase, thereby driving up their prices.

So if you had invested in debt mutual fund somewhere in December 2024, just 6 months back, the interest rate maybe around 6.50%, but now after the rate cuts, new bonds will get issued at a rate of around 5.50%. So the bond you are holding, is giving 1% extra return, which is why the demand for the bonds you are holding will shoot up and when the demand goes up, the prices will also go up. And the NAV of your debt mutual fund increases resulting in better returns.

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