The ten year
tenor securities linked to consumer price index will be sold through banks.
RBI today said that it will launch
the much-awaited Inflation Indexed National Saving Securities (IINSSs) for
retail investors in November/December 2013.
These 10-year tenor inflation index
securities would be linked to the new
consumer price index. Hindu undivided families (HUFs), trusts and charitable
institutions would also be eligible to invest in these securities. The rate of
interest on these securities would comprise a fixed rate plus inflation which would
be compounded half-yearly and paid cumulatively at redemption. These securities
will be distributed through banks to reach out to the masses, said RBI.
has also withdrawn its special repo window for
mutual funds which was introduced on July
17, 2013 to enable banks to meet the
liquidity requirements of mutual funds.
These measures were announced in the second quarter monetary
policy review today. As was widely expected by
the RBI increased repo rate by 25 basis points to 7.75
per cent and reduced marginal standing facility (MSF) by 25 basis points to 7.75 per cent. It kept the keep cash reserve
ratio (CRR) unchanged at 4 per cent.
markets gave a thumbs up to RBI’s move with the S&P BSE Sensex moving up 358
points to touch 20929, just 71 points shy of reaching 21000 level.
“We advise investors to look at incremental investments in
short term and ultra-short term funds on a risk reward basis. Also, given
that we do not expect interest rates to rise dramatically, we would expect
investors to remain invested in long duration funds,” said Lakshmi Iyer, Senior
Vice President & Head (Fixed Income and Products), Kotak Mutual Fund.
R. Sivakumar, Head Fixed Income, Axis Mutual Fund said,” Investors
could take exposure to short duration funds. Since the last policy
announcement, long term yields have risen sharply. Compared to a level of about
8.2% in the morning of September 20, 10-year government bond yield was around
8.65% at close yesterday. In response to the policy, yields have dropped to
about 8.59%, about 6 bps lower. At this level, the benchmark 10-year government
bond yield is about 85 bps over the LAF repo rate – close to its long term
average. Investors with a short to medium term view should look to invest in
short duration funds as yields in this segment are poised to drop in the near
future. Longer duration funds would outperform once inflation begins to slow allowing
the RBI to cut the repo rate.”
Vidya Bala, Head - Mutual Funds Research, FundsIndia.com
advised investors to avoid fresh exposure to long term gilt funds. “The MSF
rate cut and measures to ease liquidity will further ease rates in the
short-end of the yield curve. The latest cut together with liquidity easing
measures would mean a price rally in short-term debt instruments for some more
time. Debt funds with short-term maturity have rallied over 1% on an average
between the last monetary policy and now and saw gains as much as 1.7% in a
span of a month. While 10-year gilts fell 6 basis points to 8.58% soon after
the policy was announced, this may be seen more as a relief rally. Going
forward, with rate decisions hinging mainly on retail inflation, any rally in
long-term gilt prices may be unlikely. It would be prudent for investors to
avoid any fresh exposure to long-term gilt funds at this juncture.”