If the bank interest rate as well as CRR & Repo Rate are cut then what is the expectation in the coming months? What is your opinion of the future prospect of gilt funds? Is it the right time to invest in gilt funds? Which Tax Savings scheme can give best returns in this market?
- Kapil Chourasia
Gilts will benefit if there is a further cut in CRR (Cash Reserve Ratio) and Repo Rate as this will cause the yield of the 10-year GOI (Government of India) securities to decline. Their prices would increase as yield and prices of bonds are inversely related.
But the interest rates have been softening for quite some time now. No one can accurately predict whether or not they would continue to fall. In such a scenario, income funds would be a better investment vehicle than gilt funds, as they have the flexibility to switch between corporate bonds and gilts. Not only would they benefit from lower interest rate but would also gain from the shrinking spread between corporate bond and the gilt.