What Investors Should Do After RBI’s Latest Rate Hike


Investors should not change their outlook on fixed income funds even as the Reserve Bank of India hiked the benchmark rate again, according to Finsafe’s Mrin Agarwal and TBNG Capital Advisors’ Tarun Birani.

“There is a little bit of rate hike still left, but if you are looking at it from a long-term perspective, I don’t really see long-term yields moving that much,” Agarwal, a financial educator and founder of Finsafe India, told BQPrime’s Niraj Shah.

The central bank increased the benchmark repo rate by 35 basis points to 6.25% as India’s inflation remains elevated.

Birani said the hike was in line with the global inflationary scenario. “The way inflation has been sticky in the past, I feel the RBI’s move is more or less in line with what our expectation was,” he said.

While yields won’t move “that much” in the long term, in the short term they are going to “move up, given what’s going to happen on the repo, but it’s not going to be very drastic,” Agarwal said.

The fourth tranche of the Bharat Bond ETF, which closed on Dec. 8, is a “very beautiful structure” for investors with long-term fixed deposits or who are retired, as it offers a yield to maturity of 7–7.5%, according to Birani.

“If you look at the lineage of Bharat Bond in the past, they have been positioned like very low-cost, debt index products in the market, which is definitely a very investor-friendly product in the current environment,” he said.

However, he warned that it “comes with volatility in between periods.” Agarwal underscored that the ETF is not going to give regular income annually.

The IIFL Tax-Saver Index Fund, which is still on sale till Dec. 21, is “an option to watch,” said Agarwal, adding that she would continue to watch for the “tracking error” on the passive fund.

As the fund is a “cheap product,” it can “balloon like a very big category going forward and for the investor,” Birani stated.


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