RBI doesn’t cut rates – What you should do?

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On Oct 9, 2020, RBI gave a lot of reason to the markets for cheer and hope. It took several steps to ensure that economic revival is not curtailed for the lack of funds.

However, as you also know, in the wake of higher than expected inflation, the central bank did not cut policy rates (repo, reverse repo and bank rates).

For savers, this is a respite, specially after a long period of constant rate cuts.

I still get calls about how a bank FD gives 5% or less now. In fact, liquid funds are about 4 to 5% a year. Hopefully, these rates will stay there and not move downwards.

Having said that, for sovereign bonds (Govt securities of Centre and States) as well as AAA rated corporate bonds, the rates are likely to go down a tiny bit.

That doesn’t mean you step out into the woods for higher yields and adventure.

Safety and liquidity is still the key.

So, in deciding your debt mutual fund investments prefer liquid, ultra short, money market or short term debt. You may even consider dynamic bond funds with low to medium duration. High credit quality remains the most important filter.

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Your PPF and EPF investments can continue. If you are closer to retirement, your VPF (if available) bucket can also take on some of the savings.

It is needless to remind that you investments should be aligned to your plan and your asset allocation.


On the other hand, if you are planning to take a home loan, you may be surprised with lower interest rates. RBI has changed the exposure margin requirements for home loans which can possibly translate into more attractive rates and EMIs for you.

TIP: You can use the PMT formula in Excel or Google Sheets to determine your loan repayment instalment aka EMI.

Open the sheet and start with an equal to sign. Then enter the following variables.

=PMT(Annual rate of interest / 12, no. of months, – loan amount,,)

For a home loan of Rs. 30 lakhs at 6% annual rate for 20 years, this is how the formula works

=PMT(6%/12, 240,-3000000,,)

This should result in Rs. 21,492.93, which is your EMI amount.

All the best!

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Vipin Khandelwal
Vipin is a SEBI Registered Investment Adviser. He works with investors to make better decisions and create behaviour alpha.
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