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After the repo rate cut by 25 basis points by RBI, the situation seems to be changing for mutual fund investors. The fall in interest rates is opening up new opportunities in debt and hybrid funds, while its positive impact can also be seen on equity funds. Experts say that the current rate-cut cycle is the right time for investors to change their strategy and create a smart portfolio.
New Delhi. The Reserve Bank of India has reduced the repo rate by 25 basis points to 5.25 percent. From February 2025 till now, RBI has reduced the repo rate by a total of 125 basis points, due to which the direction of interest rates in the market seems to be changing. This change is going to have a direct impact on mutual fund investors. This will especially affect those people who are investing in debt funds, hybrid funds or equity funds.
Why did short-term debt funds become the first choice?
Market expert analysts believe that in the current rate-cut cycle, debt funds with a tenure of 1 to 4 years can become the best option for investors. According to Vishal Dhawan, Founder and CEO of Plan Ahead Wealth Advisors, people with conservative or short-term planning who are investors with very low risk appetite can choose liquid funds, ultra short-duration funds and short-term debt funds. The possibility of stability and better returns in the short term after rate cuts makes this category of funds attractive. According to Dhawan, investors can also try options like equity savings and arbitrage which offer less volatility and tax efficiency.
Growing demand for hybrid and SIF strategies
Dhawan says that apart from traditional debt categories, investors today can also try hybrid strategies like Specialized Investment Funds (SIFs). This option gives an opportunity to give better returns than debt funds, while the risk remains relatively low. However, these funds do not have a long track record, so investors should proceed with caution. On the other hand, on the equity side, financial planner Pallav Aggarwal says that the repo rate cut will make borrowing cheaper for companies, which will increase their profitability. Equity mutual funds will directly benefit from this. Its positive impact can be seen on sectors like banking, real estate and auto.
How to make a forward investment strategy
According to reports, RBI’s neutral stance and frequent rate cuts will provide good prospects for debt funds with tenures of 1-4 years. As yields fall further, medium-duration funds may also outperform. At the same time, investors in equity mutual funds can earn good profits by adopting a long-term strategy because low interest rates increase the earning capacity of companies. It is most important for investors to take decisions keeping in mind their risk appetite, investment period and financial goals. Choosing the right fund and right tenure can give better and stable returns in the long run.
