On June 5, RBI added Rs 23,856 crore to the banking system. For this, he bought government bonds of so much value. The central bank keeps taking measures like open market operations and currency swap ocons to maintain liquidity as per the need in banking system. However, recently there has been a softening of the bonds of bonds.
Many reasons for softening of bonds prices are believed to be. RBI is expected to reduce interest rates in October. Global economy has a state of uncertainty over tariffs. This has reduced the difference between American and Indian bonds between yields. This has led to some profits. Shubham Gupta, CFO and co-founder of Growthwine Capital, said, “Supplies have increased from the Rs 25,000 crore output. But, it is not so much that it can affect the yield.”
The question is, what should be your fixed income strategy in the current situation?
In view of the hope of reducing the interest rate further, it would be good to invest in short-duration bonds instead of long duration. The immediate impact of RBI’s repo rate decreasing will affect shorter duration bonds compared to bonds with a longer duration. Second, there is a higher risk in more dunioration bonds. If the RBI does not reduce the interest rate, then those investing in the long duration segment will have a mark-to-market loss. So it would be fine to invest in low -duras bonds right now.
Mayur Chavan, Fund Manager (Fixed Income) of Quantum AMC, said, “Investing in the Short Duration Segment, your income may be slightly less. But you will be safe and you will have a chance of reels when you change the situation.” If the central bank does not reduce the repo rate in the coming months, then investors who have long duration bonds may have a mark-to-market loss.
In the situation that is now, it is necessary to save your capital from running after the yield. Your total returns may be slightly lower than short-duration investment, but you will remain safe due to the impact of excessive ups and downs in the policy rates. Chavan said that behind its thinking is that as long as the conditions are looking uncertain, you have the benefit in staying defensive.