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17 Apr 2012 04:19 AM
RBI slashes policy rates: What should you tell your investors? 
Team Cafemutual
 

Read on to find what a few leading IFAs are recommending.

The RBI finally gave a breather to corporate India by cutting repo rate, the rate at which the central bank lends to banks, by 50 basis points from 8.5 percent to 8 percent.

Hemant Rustagi of Wiseinvest Advisors says that investors with one year time horizon can consider investing in short term debt funds. “Investors with long term horizon should wait for tax free bonds because of the tax efficiency of these bonds. Investors who have already locked in rates in FMPs need not worry. As far as new FMPs are concerned, investors can consider investing in one year FMPs. In the open ended category, short term bond funds and dynamic bond funds look good.” Dynamic bond funds are actively managed funds which realign their portfolios as per the interest rate cycle. 

Gajendra Kothari of Etica Wealth Management advises investors to take exposure to corporate bond funds and gilt funds. He recommends MIPs to investors having two to three year time horizon. “Funds with higher duration like corporate bond funds and gilt funds will rally. Investors with two to three year time horizon who do not wish to invest in equities can invest in gilt funds or corporate bond funds. Dynamic bond funds would be a good bet for investors with one to two year time horizon,” says Gajendra.

Corporate bond funds usually invest in longer duration papers. Due to the inverse relationship between yield and bond prices, any further rate cut would push up the prices of bonds.

Lovaii Navlakhi, Founder & CEO, International Money Matters, strikes a cautionary note. “The RBI has indicated that there is little scope for further rate cuts in the immediate future so yields will again start moving upwards. This is a good time to take the money out if investors don’t have a long term outlook,” says Navlakhi.

 
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