According to SFC Today, the Reserve Bank of India (RBI) has reduced the repo rate by 50 basis points to 5.50% and the Cash Reserve Ratio (CRR) by 1% to 3% in a move to stimulate economic growth while keeping inflation in check. This marks the third rate cut in 2025, totaling a 100 basis points reduction. The changes significantly affect debt fund investors, particularly those in long-term debt funds like gilt and dynamic bond funds, which benefit from falling interest rates. However, with the RBI's shift to a 'neutral' stance, further rate cuts are unlikely, suggesting limited capital appreciation potential. Investors are advised to consider shorter-duration funds for stability and predictable returns. The CRR cut releases ₹2.5 lakh crore into the banking system, enhancing liquidity and supporting credit growth. This environment may benefit credit risk funds, though caution is advised. The rate cuts also impact fixed deposit rates, making debt mutual funds more attractive for investors seeking better post-tax returns.
RBI Cuts Repo Rate by 50 Basis Points, Impacting Debt Fund Investors
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