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Last Updated : May 23, 2020 11:18 AM IST | Source:

RBI just did a Bajrangi Bhaijaan act by advancing MPC decision: Lakshmi Iyer 

Fixed-income mutual funds have a plethora of options for investors to suit varying risk appetite as also varying tenors.

Moneycontrol Contributor @moneycontrolcom

Lakshmi Iyer

Aaj ki party meri taraf se….this is a famous song in the Bollywood movie Bajrangi Bhaijaan. RBI just did a Bajrangi Bhaijaan act by advancing the monetary policy decision from June to May 20. While, the repo rate cut of 40 bps was in line with expectations, what surprised us and markets is of course the timing of the decision.


It is quite evident here that the medical emergency emanating out of COVID-19 has meant more agility in actions from world central bankers – and India is no exception.

The governor has also guided that there is more space for monetary accommodation if inflation (read CPI) continues to remain tepid.

Looking at how the COVID-19 situation is emerging, inflation, for now, doesn’t seem to be a big evil to be in the reckoning. Discretionary spending is down – you and I are footing lower credit card bills.

There are fewer people chasing goods at the same time – all this suggests inflation could surprise on the downside in the coming months.

RBI did not provide any growth forecast for FY21 but admitted that growth will likely be in the negative territory due to the extended lockdown to combat COVID-19.

This is understandable as it is quite an uncertain environment making such forecasts less meaningful. After some knee jerk moves, in general we have seen optimism in bond markets, which has been reflected in yields coming down over the past few days.

The buoyancy was such that a three-month treasury bill was trading 1.2 percent below the repo rate which was at 4.4 percent pre rate action. Similar movements were seen across various tenors in the yield curve.

Government bonds too were sensing some likely action and were participating in the corporate bond action.

What does all this mean for fixed income investors?

The benign interest rate regime is reflective of easy liquidity in the banking system. This also means that banks are flooded with deposits, thereby the tendency to cut such rates further remains a high chance.

Fixed-income mutual funds have a plethora of options for investors to suit varying risk appetite as also varying tenors.

Such funds are not strictly comparable to bank fixed deposits as they do not offer any assurance of returns.

However, such funds do offer the potential to participate in likely capital appreciation apart from the portfolio yields which are market-linked.

Hence, it makes imminent sense for investors to plan their investments in fixed income in line with an individual appetite to stomach risk. It a fallacy to assume the NAVs of such funds will only keep going up.

NAVs move in line with the market, and hence would be subject to market volatilities. It is therefore imperative for investors to stay the intended investment course as panic would only lead to pain, with nothing much to gain.

Stay safe, stay invested

The author is CIO-Debt & Head-Products, Kotak Mahindra Asset Management Company

Disclaimer: The views and investment tips expressed by investment experts on are their own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.

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First Published on May 23, 2020 11:18 am
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