RBI move to boost short duration funds, soften borrowing costs for firms

Experts say funds exposed to lower maturity debt papers to gain from long-term repo operations

Debt fund managers are expecting short- and medium-duration funds to accrue gains from the Reserve Bank of India’s (RBI) long-term repo operations (LTRO), which is expected to bring down borrowing costs in the shorter-tenure market.

“The RBI has announced one- and three-year long-term refinance operations at the repo rate. Effectively, this will substantially cut the cost of funding for banks in that maturity bucket, which will also translate to yields in the markets,” said R Sivakumar, head of fixed income at Axis Mutual Fund (MF). “The move is expected to benefit short-duration funds and to some extent medium-duration products,” he added.

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