Current Scenario in India for Investment in Debt

In India, starting 2020, interest rates have taken a nosedive to promote growth and investment. This is done across the world by central banks and they all have taken a accommodative stance. This calls for an analysis of current scenario in India for debt investment and apt instruments for same.

RBI in its meeting in Feb’21 has kept its benchmark repurchase rate at 4%. Reverse repo stands at 3.35%.

This means that interest rate at which most of the debt changes hand in our country is at very low levels compared to the last many years. Be it a home loan, a personal loan, the average interests have come down and so is the case with the Investor’s return on debt too.

If we talk about AAA or AA category bond paper, it is usually coming with an interest coupon of 4-5%. Of course as we go lower in the bond rating, return will be high but so will be the risk.

Looking at the budget in Feb’21, as the borrowing plan of government has increased by almost 100%, it will ensure that the 10 year interest rate for G-Sec remains and inches up from the level of 5.9-6.2%.

Hence, looking at the above facts, this is a good time to invest in floating rate funds/Bonds to shield us from a rising interest rate scenario in the future. Investors can also look at ultra short term funds having a maturity of up to 6 months as this dilutes, both the credit and interest rate risk.