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RBI's Jumbo Rate Cuts & What It Means for Your Mutual Fund Portfolio

A comprehensive understanding on how the RBI's rate cut aims to reshape the investment landscape, shared by Shalab Gupta Bibhab, Founder at Bibhab Capital.

HT Brand Studio

Published 13 Jun 2025, 10:09 AM IST

Explore the insights on the RBI's Jumbo Rate Cuts by Shalab Gupta Bibhab, Founder at Bibhab Capital.

In a bold and unexpected move on June 6, 2025, the Reserve Bank of India slashed the repo rate by 50 basis points to 5.50% and cut the Cash Reserve Ratio (CRR) by 100 basis points. It's the sharpest monetary easing in five years, signaling the central bank's strong intent to boost economic growth while keeping inflation-at just 3.2% in Q4FY25-firmly in check.

This policy surprise has meaningful implications for your mutual fund portfolio-both on the equity and debt sides.

The twin boost of lower interest rates and increased liquidity is set to make borrowing significantly cheaper. Expect this to translate into more home purchases and a surge in demand for passenger vehicles. Add to that a forecast for an above-average monsoon, and you've got a solid recipe for rising rural and urban consumption. This spells opportunity for sectors like Banking & Financial Services, Real Estate, and Automobiles.

On the flip side, export-driven sectors such as Technology and Pharma could feel the pinch from global uncertainties and cautious enterprise spending. But domestically driven consumption themes are likely to be where the action is.

For debt mutual fund investors, RBI's move poses an interesting puzzle. While medium- and long-duration funds have already benefited from falling yields, the central bank's neutral stance signals a pause. This suggests limited room for future capital appreciation from additional rate cuts. It might be time to gradually shift some exposure from long-duration and gilt funds toward shorter-duration options.

If you've been sitting on fixed deposits, this might be the moment to consider debt mutual funds. When rates are falling, your FDs start renewing at lower yields. But debt funds can buffer that impact through capital gains, while also offering liquidity and tax advantages.

In short, the RBI's rate cut reshapes the investment landscape. Equity sectors tied to domestic demand look poised for upside. On the debt side, it's about locking in gains and rebalancing smartly. Staying diversified and proactive is key as the cycle shifts.

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