RBI MPC rate hike: Experts decode what the policy decision means for mutual fund investors

The Monetary Policy Committee (MPC) of the Reserve Bank of India, in its bi-monthly review on Wednesday, announced the first rate hike in nearly four years and decided to increase its benchmark repo rate by 25 basis points to 5.5%. The repo rate was last raised in February 2023, when it was increased by 25 basis points to 6.50%.

The move marks the first rate hike under Governor Sanjay Malhotra, who took office in December 2024 and oversaw a series of rate cuts last year. The RBI’s revised stance “underscored that given the current conditions, rate cuts are off the table in the near term, and policy action can only be a hike or a pause, depending on the evolving conditions,” Malhotra said.

Here is how mutual fund managers explain the policy for investors


Dinesh Ahuja, Head - Fixed Income, ASK Mutual Fund: Considering the uncertainty surrounding energy prices, which have been the predominant factor in setting rate expectations globally, investors may consider liquid funds for short term liquidity requirements. For investors with a slightly longer-term horizon, the 2-3 year (short-term, corporate bond and PSU bond funds) point of the curve seems attractive from a risk reward perspective.

Also Read | Rs 4 crore portfolio with ULIPs and multiple mutual funds. Should you simplify and consolidate your investments?

Anurag Mittal President & Head - Fixed Income, UTI AMC: Investors should move into 2–4 year and moderate duration funds like short term or corporate bond funds where current yields are highly attractive between 7.8-8% without meaningful duration risk.

Vijay Kuppa, CEO, InCred Money: While today’s rate hike was largely anticipated, current market valuations continue to present a buying opportunity to investors in a staggered manner. The next few months will be particularly important because the direction of crude prices, inflation and the rupee will determine whether today’s move is a one-off adjustment or the beginning of a broader normalisation of monetary policy.

Amit Modani, Senior Fund Manager & Lead Fixed Income, Shriram AMC: While fixed income remains attractive on carry, investors should prioritise quality and accrual over duration. High-quality corporate bonds offer a favourable risk-reward, while liquid and money market funds remain well suited for shorter horizons and should benefit as short-term rates stay firm. Investors with a medium-term horizon may use this phase to lock in attractive yields, avoiding aggressive duration bets until there is greater clarity on oil prices and global rates.

Edelweiss Mutual Fund: Interest rates generally peak out at the later stages of a rate-increase cycle. Until there is greater visibility on the peak in policy rates, investors should focus on accruals. We see value in AAA-rated bonds maturing in two to three years and offering yields of around 7.75% to 8.25%. At these levels, the risk-reward proposition appears attractive for investors.

Investors with a clear and defined investment horizon may also consider target-maturity funds that invest predominantly in AAA-rated assets and mature within three years. The fund’s maturity should be aligned with the investor’s intended holding period.

Apurva Sheth, Head of Market Perspectives and Research, SAMCO Securities: For companies, the hike redistributes pain. Leveraged real estate, infrastructure and debt-heavy mid-caps see margins squeezed, and EMI-driven demand in housing, autos and durables slows. CASA-rich banks gain as loans reprice before deposits; wholesale-funded NBFCs do not. Net-cash exporters in IT and pharma benefit twice over. For markets, expect a valuation reset, not an earnings collapse, with richly valued small- and mid-caps most exposed.

Amit Somani, Deputy Head - Fixed Income, Tata Asset Management: Given that policy outcome was largely in line with market expectations, we believe short term rates are likely to remain stable with adequate liquidity prevailing in the banking system. We expect 3-6 month CD rates to continue to trade around 6.60-7.00% levels while 1-year CDs to trade around 7.50%-7.75%, expecting continuing rate hikes over the next couple of policies.

Long-term rates are likely to settle higher with the 10-yr G-sec expected to trade in 7.20%-7.40% range. Beyond domestic monetary policy, global bond yields and geopolitical risk will continue to drive short term as well as long term yields.

Basant Bafna, Head – Fixed Income, Mirae Asset Mutual Fund: We expect one more hike in December and a shallow cycle with developments in the Middle East and the second order impact of El-Nino closely watched. While the overall curve has turned steep and is factoring-in most negatives, we favour the 6 -18 month part of the curve which continues to offer attractive risk adjusted returns.

Also Read | Vikas Khemani’s Carnelian Mutual Fund appoints Rajkumar Dhiman as CEO

For crypto investors

Rajagopal Menon, Vice President, WazirX: For crypto markets, the shift to calibrated tightening raises a question: How much further will rates rise? Even an expected increase can move markets if the RBI’s guidance changes expectations for the months ahead. Global liquidity and US interest rates will also influence the outcome.

Bitcoin’s fixed supply remains part of its long-term appeal. Its market price, however, responds to demand and the money available to buy it. Investors facing higher expenses may sell assets they still believe in.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

If you have any mutual fund queries, message ET Mutual Funds on Facebook/Twitter. We will get them answered by our panel of experts. Do share your questions at ETMFqueries@timesinternet.in along with your age, risk profile, and Twitter handle