In a rather surprise move, RBI in its recent monetary policy on 6th April 2023 has unanimously decided to keep the repo rate unchanged at 6.5%. RBI has been hiking interest rate since May 2022 and so far has increased it by 2.5% since May 2022. So, in a way this is a welcome break.
Recently twin bank failures in the US and distress sale of big Swiss bank Credit Suisse has prompted the central banks around the World to take a break in their stance of aggressive rate hikes to stem the inflation. Further, RBI in a pleasant surprise has forecasted the inflation figure to 5.2 % from earlier 5.3% which definitely advocates the case in favour of a pause in interest rates. Though the RBI Governor has clearly indicated that interest rates may go up in near future depending upon inflation trajectory.
We have earlier maintained that this is a good time to invest in debt funds because of attractive yields and the possibility of hikes in interest rate is not that great. Investors should have a good exposure in debt funds anyway besides equity and hybrid funds to maintain a judicious mix in their portfolio. So if the exposure of debt is less than it’s time to augment it further.
Though the change in the taxation of debt funds is a dampener for debt funds, the importance of debt funds in the portfolio is immense. You can’t not have only an equity oriented portfolio for all your financial goals just because the taxation is favourable in equity funds. Bank fixed deposits are the alternative but many features of debt funds make them slightly better than bank fixed deposits.
Manoj Pandey
CFP
