Against the backdrop of a rapid rise in inflation, noises around rate reversal have been going strong for a while now. This situation has not been unique to India; things have been that way even globally. In its April MPC meeting, the Reserve Bank of India (RBI) had suggested focusing on the withdrawal of various policy measures to ensure that inflation remains within the target band. Yesterday, in an off-schedule meeting, RBI finally took the decisive step of announcing a 40 basis points rate hike. This possibly marks the start of a few more hikes in the future. How does it impact debt funds? When RBI increases interest rates, any new bond issuances carry higher coupons making the existing bonds relatively less attractive. To compensate for the lower payouts, their prices fall. Now, the NAV of your debt fund is derived from the prices of the
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