The RBI's Monetary Policy Committee on Wednesday announced its decision to keep the key interest rates unchanged. The repo and reverse repo rates remain unchanged at 4% and 3.35%, respectively.
Despite the unchanged rate scenario, fund managers expect the returns from shorter duration funds like overnight and liquid to go up.
"As the RBI sucks out the excess liquidity in the banking system over the next month, we would expect the overnight rates to move from the current levels of 3.35% (Reverse Repo Rate) towards the Repo Rate of 4%. This would mean that accrual returns on very short term, low market risk products like overnight and liquid funds could rise in the coming months," said Pankaj Pathak, Fund Manager, Quantum AMC.
Puneet Pal, Head-Fixed Income at PGIM India MF, also shared a similar view. "Majority of the excess liquidity will be absorbed in auctions near the policy repo rate at 4% and we continue to expect that the short term money market rates will inch higher," he said, adding that investors should look at ultra-short and money market funds for very short term (less than 1 year) investment.
For investment horizon of 1-3 years, he recommended banking & PSU fund and corporate bond fund.
