What should MF investors do amid the possibility of rate cut?

Fear of coronavirus may force the Reserve Bank of India to cut rates soon. Money market participants say that the move of the US Fed Reserve will put pressure on it. The US Fed had cut a surprising 50 basis points on Tuesday. It has taken this step with the aim of limiting the impact of increasing number of corona virus infections on the global economy. Due to this, there was an immediate boom in the US stock market but the market fell again as soon as the US Fed understood the limits in this matter. The same happened in the Indian stock market where the Sensex closed down 0.55% and the Nifty fell 0.43%.

Shaktikanta Das said in his statement, ‘The Reserve Bank of India is constantly monitoring the developments happening both domestically and globally. It is willing to take appropriate steps to keep the financial markets right, maintain market confidence and maintain financial stability. The 10-year benchmark bond yield fell sharply on Wednesday on the possibility of interest rate cuts. The benchmark yield fell 12 basis points (0.12%) to 6.22% on Wednesday.

Lakshmi Iyer, CIO-debt and head-product of Kotak Mutual Fund, says, “After the US Fed’s rate cut, now the Indian bond market is also expecting a rate cut. I believe that the Reserve Bank can reliably cut rates to protect the economy from the effects of the corona virus. According to me, markets around the world are expecting a rate cut.

According to Pankaj Pathak, fund manager of Quantum Mutual Fund, the market has already adjusted itself to the expected rate cut and now there will be no significant change in the situation if the rate is cut. “We are expecting a rate cut of 25-50 basis points,” says Pathak. The rate cut may exceed 25bps. If the MPC signs a further rate cut after the meeting, bond yields will fall further. However, investors should avoid putting claims on the near term price movement.

Lakshmi believes that short durations schemes are still a safe option to stake. She says, ‘Entry into long duration space should be avoided. I believe that investing in short, liquid and ultra short space can provide good returns. In the current situation, it would be appropriate to do some allocation in banking and PSU debt funds and corporate bond funds.

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