In this episode, Monika delves into the RBI’s decision to maintain the repo rate at 6.5% despite market expectations of a 25 basis point cut. She explains the repo rate’s role as the interest rate at which the RBI lends to banks, influencing liquidity and inflation. The decision stems from the central bank's inflation-targeting mandate, which restricts easing rates amidst high inflation. However, the RBI cut the Cash Reserve Ratio (CRR) to 4%, injecting ₹1.16 lakh crore into the banking system.

Monika further discusses the rationale behind the RBI’s cautious approach. While core inflation remains within target, persistently high food inflation limits the scope for rate cuts. The CRR reduction is seen as a move to boost liquidity, with many viewing it as a precursor to a potential rate cut in early 2025. Lower growth forecasts and rising inflation add complexity to the economic outlook, reflecting the challenges of balancing growth and stability.

The episode also covers the concept of bond duration, a critical measure of interest rate risk in debt instruments. Monika explains how duration quantifies the sensitivity of bond prices to interest rate changes. Longer durations mean greater risk as bond prices drop sharply when rates rise. This segment sheds light on how advisors evaluate debt funds based on duration to align risk with investors’ goals, ensuring informed decision-making in volatile markets.

Listener queries focus on practical financial challenges. Miranda seeks clarity on mutual fund redemptions, comparing lump-sum investments and SIPs for short-term goals, and understanding the first-in-first-out rule for selling units. Nishant, a PSU employee, explores strategies to invest ₹18 lakh gifted by grandparents for his daughters’ future while weighing the merits of NPS Vatsalya versus index funds. Finally, Bunti seeks guidance on claiming bank FDs without a nominee, underscoring the importance of updated nominations and succession planning.

Chapters:

(0:33 - 5:48) RBI's decision on interest rates and what it means for growth

(5:50 - 7:13) Understanding bond duration and interest rate risks

(7:18 - 11:22) Should you invest in ultra-short-term funds for 6-month goals?

(11:24 - 14:48) Mutual funds vs. NPS Vatsalya: Which is better for gifting money to your daughters?

(14:50 - 16:18) Dealing with FDs and mutual funds when there’s no nominee: What to do

https://tradingeconomics.com/india/interest-rate

https://npstrust.org.in/sites/default/files/inline-files/nps_vatsalya_borchure_marged.pdf 

If you have financial questions that you’d like answers for, please email us at ⁠[email protected]⁠ 

Monika’s book on basic money management

⁠⁠⁠⁠⁠⁠https://www.monikahalan.com/lets-talk-money-english/⁠⁠⁠⁠⁠⁠

Monika’s book on mutual funds

⁠⁠⁠⁠⁠https://www.monikahalan.com/lets-talk-mutual-funds/⁠⁠⁠⁠⁠

Monika’s workbook on recording your financial life

⁠⁠⁠⁠⁠⁠https://www.monikahalan.com/lets-talk-legacy/⁠⁠⁠⁠⁠⁠

Calculators

⁠⁠⁠⁠⁠⁠https://investor.sebi.gov.in/calculators/index.html⁠⁠⁠⁠⁠⁠

You can find Monika on her social media @monikahalan. 

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Production Assistant:⁠⁠⁠⁠⁠ Anshika Gogoi⁠⁠⁠