RBI rate hike by 25 bps: Should you lock into debt funds as bond yields rise? Axis MF outlines strategy for investors
Mint 53 min ago·8 Oct 2026, 3:31 am
The Reserve Bank of India (RBI) has raised the repo rate by 25 basis points to 5.5%, marking a shift towards a tighter monetary policy cycle. This move signals that borrowing costs are likely to stay higher for longer, which typically causes bond yields to rise. Consequently, the value of existing debt securities in the market tends to fall.
For investors, this environment requires a strategic approach to debt funds. Rather than chasing immediate returns, a prudent strategy involves focusing on high-quality corporate bonds with a 1-3 year maturity. This duration helps lock in current yields while mitigating the risk of falling prices as rates continue to climb.
Investors should watch for further guidance from the central bank regarding the pace of future rate hikes. As yields rise, the total return from debt funds may improve, but the NAV (Net Asset Value) could still be volatile. It is advisable to stagger your investments over time to manage interest-rate risk effectively.
Excerpt from Mint
The RBI’s 25 bps repo rate hike to 5.5% could keep bond yields elevated as the rate cycle turns tighter. Debt-fund investors may prefer 1-3 year high-quality corporate bonds now, while gradually adding duration as yields rise further. The Reserve Bank of India’s decision to raise the repo rate by 25 basis points to…Read the original at Mint
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