FDs or Bonds? Where to Invest After the Repo Rate Cut

Balasahana Suresh
When the Reserve Bank of India (RBI) announces a repo rate cut, it directly impacts the returns on Fixed Deposits (FDs). Here’s what investors need to know and where to consider putting their money.

1. Impact on Fixed Deposits (FDs)

  • Banks usually reduce interest rates on FDs shortly after an RBI repo rate cut.
  • This means new deposits will earn lower returns, affecting conservative investors who rely on fixed income.
  • Existing FDs continue to earn the rate agreed upon at the time of deposit until maturity.
2. Bonds and Debt Instruments

  • Government and corporate bonds may become more attractive after a repo rate cut.
  • Bond prices tend to rise when interest rates fall, offering potential capital gains in addition to regular interest.
  • Long-term bonds or debt mutual funds can benefit from falling rates, but they carry interest rate risk if rates rise again.
3. Equity Market Considerations

  • Lower repo rates can boost equity markets as borrowing becomes cheaper and corporate profitability may improve.
  • Young investors with a long-term horizon may consider equity mutual funds or stocks for better returns, though risk is higher.
4. Key Tips for Investors

  • Diversify your portfolio across FDs, bonds, and equities based on risk appetite.
  • Short-term FDs may be less attractive; consider short-duration debt funds instead.
  • Consult a financial advisor to data-align investments with goals and risk tolerance.
Conclusion

After a repo rate cut, FD returns decline, making bonds and select debt funds more attractive, while equities may also benefit from a lower interest rate environment. Investors should evaluate risk and return carefully and diversify to optimize their portfolio.

 

Disclaimer:

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk.

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