|
| For debt, bank on short-term funds |
| BS Reporter / Mumbai Jan 30, 2010, 00:33 IST |
|
The Reserve Bank of India (RBI) surprised the market by raising the cash reserve ratio (CRR) by 75 basis points. “We were expecting a hike of 50 basis points,” said Nilesh Shah, chief executive, ICICI Prudential Mutual Fund.
Though the CRR hike is going to suck out Rs 36,000 crore from the system, market experts say interest rates may not rise immediately. However, there is worry that the rise will coincide with mid-March outflows due to tax payments, resulting in some pressure on interest rates.
Lakshmi Iyer, head, fixed income and products, Kotak Mahindra AMC, said: “The real impact will be felt only in March because the second CRR hike, effective in February-end, coupled with advance tax outflows in March, will neutralise the liquidity in the system.”
For investors in debt funds, investing in the short end of the curve will be ideal. “Debt fund investors should look at short-term bond funds because these will get re-priced,” said A Balasubramaniam, chief executive, Birla Sun Life Mutual Fund. Short-term bond funds invest in paper with average maturity of one-two years. They are at present giving 6-6.5 per cent returns.
Experts say the shorter end of the yield curve is expected to move faster than the longer end before settling in a range. Therefore, debt funds sitting on cash till now will deploy cash at a slightly higher rate, leading to a rise in short-term rates. Ramanathan K, head, fixed income, ING Investment Management, said: “Short-term debt funds of three- and six-month tenures may move up by 25-50 basis points closer to March.”
For investors looking at fixed deposits or company deposits, Shah said waiting till March would be a good idea. “The government’s borrowing programme will have a bigger impact on interest rates,” he added.
|
|
|
|
|
|
|
|
|
|
 Read Business news in |  |
|
|
|
|
|
|
Advertisements |
|
|
|
|
|
|
|
|
|
|
Content Guide
