Mutual fund experts are of opinion that investors should move part of their assets into income funds to benefit from a falling interest rate scenario
New Delhi: Following Reserve Bank of India (RBI)'s decision to lower its key rates for first time after nine months and hopes for further cuts in coming months, mutual fund (MF) experts are of opinion that investors should move part of their assets into income funds to benefit from a falling interest rate scenario, reports PTI.
Income funds are mutual fund schemes that emphasise on current income, either on a monthly or quarterly basis by investing in government as well as corporate debt securities.
"Investors should consider investing in income funds with long duration to benefit from the possible decline in interest rates in the next three months," said Dhawal Dalal, Executive Vice President and Head of Fixed Income at DSP BlackRock Investment Managers.
After a long gap of nine months, RBI on Tuesday reduced the short-term lending rate by 0.25% and decided to release Rs18,000 crore of primary liquidity.
Arvind Chari, Senior Fund Manager (Fixed Income) at Quantum Asset Management Company said: "We expect 10 year bond yields to remain range bound in February and move lower towards the March policy in expectation of the rate cut in the March quarterly review."
The 0.25% CRR cut and government spending would address the liquidity tightness and further tightness would be addressed through Open Market Operations (OMOs), he added.
Lakshmi Iyer, Senior Vice President and Head, Fixed Income, Kotak Mutual Fund said: "While the 25 bps cut in repo was expected, its realisation has provided a palpable relief to the markets...We may continue to see further rate reversion going forward, so as to better measure the fiscal impact on the economy."
LIC Nomura Mutual Fund would launch Rajiv Gandhi Equity Savings Scheme on 11 February 2013
Mumbai: LIC Nomura Mutual Fund has received approval from the market regulator Securities and Exchange Board of India (SEBI) to launch Rajiv Gandhi Equity Savings Scheme (RGESS) and will launch it on 11th February, reports PTI.
"We are launching the Rajiv Gandhi Equity Savings Scheme (RGESS) on 11th February and will be open till 25th February," its Chief Executive and Director Nilesh Sathe said in a release.
RGESS, announced in the last Budget, seeks to provide tax benefits to first-time investors in the stock market.
Under the scheme, an individual with an income of up to Rs10 lakh would get tax incentives for investing up to Rs50,000.
While SBI has cut its lending rate by a marginal 0.05% (5 basis points), HDFC Bank and Federal Bank announced reduction in a few segments like auto loans to the tune of 0.25%-0.50%
Mumbai: Auto, home and corporate loans will become cheaper with banks, led by market leader State Bank of India (SBI), lowering the lending rates by up to 0.50% in response to the easy money policy of the Reserve Bank of India (RBI), reports PTI.
While SBI has reduced the lending rate by a marginal 0.05% (5 basis points), private sector HDFC Bank and Federal Bank announced reduction in a few segments like auto loans to the tune of 0.25%-0.50%.
Public sector IDBI Bank and Royal Bank of Scotland (RBS) had reduced lending rates by 0.25% and 0.75% respectively on Tuesday.
The lowering of the interest rates follows the decision of the RBI to cut key benchmark lending (repo) rate by 0.25% and deciding to inject additional liquidity of Rs18,000 crore by a similar cut in cash reserve ratio (CRR).
With the reduction, SBI's base rate or the minimum lending rate will now go down to 9.70% from 9.75% effective 4th February.
"Through this reduction, we are passing on a little more than what we gain through the rate cut by the RBI," a senior SBI official said after a meeting of the asset liability committee (ALCO) of the bank.
HDFC Bank has lowered interest rate on car and two-wheeler loans by 0.25% and 0.5% respectively.
On commercial vehicles, the interest rates would be reduced by 0.25%, an official said adding that the new rates would be effective from 1st February.
Mumbai-based HDFC Bank currently offers car loans between 10.75% and 11.75%. Post rate cut, the range would be 10.5%-11.5% for repayment period between 36 and 60 months.
Accordingly, interest rate on two-wheeler loans would be adjusted to between 19.25% to 22.25%.
With regard to commercial vehicles, the rate on heavy commercial vehicle will be down by 0.25% to 11% while rate for light commercial vehicle will get reduced to 13.75% from existing 14%.
The auto loan portfolio of the bank currently stands at about Rs33,000 crore. The auto loan advances of the bank have been witnessing a growth of 12%.
IDBI Bank has already lowered its base rate by 0.25% to 10.25% effective 1st February.
SBI, which has the most aggressive offering among the domestic banks, had last cut its base rate by 0.25% last September following the two CRR cuts by RBI earlier.
The largest bank, has however, not cut its deposits rates as the bank’s asset liability committee felt its offering is among the lowest in the market at present, the official said.
"We are gaining around Rs275 crore and passing around Rs350 crore...this will have a very negligible impact on our margins," the SBI official said, adding the outstanding loans under the old benchmark prime lending rate will also go down by a similar 0.05%.
A majority of bankers said they would transmit the benefits of the RBI rate cut.
Last month, HDFC Bank had reduced its base rate by 0.1% to 9.7%, the lowest in the market.
At the same time, the benchmark prime lending rate (BPLR) of the bank was also slashed by a similar margin to 18.20%.