Repo Rate Rising: Is Your Debt Fund Losing Money?

When RBI raises the repo rate, bond prices fall and debt mutual funds can lose value. If you have money in debt funds, here is what is happening and what you should do right now.

Here's what happened: RBI has raised the repo rate, with bond markets already pricing in a total of around 100 basis points of hikes in this cycle, putting pressure on debt mutual fund returns.. When repo rates rise, existing bond prices fall — this directly reduces the Net Asset Value (NAV) of debt funds holding longer-maturity bonds.. Long-duration and gilt funds are hit hardest; short-duration, liquid, and overnight funds are largely insulated because their bonds mature quickly and reprice faster..

What you should do: Check the 'modified duration' of your debt fund on its factsheet — if it is above 4, your fund is meaningfully exposed to further rate hikes; consider switching to a shorter-duration category.. Compare your debt fund's 1-year return against current bank FD rates — if the FD rate is close or higher and you are in the 30% tax bracket, calculate post-tax returns before staying put.. Avoid fresh lump-sum investments in long-duration or gilt funds right now; if you must invest in debt, use liquid funds or floating-rate funds until rate hikes pause..

Floating-rate debt funds hold bonds whose interest resets upward as rates rise — they are the rare debt category that can actually benefit during a rate-hike cycle.

For readers weighing their credit and loan options, our personal loan guide and CIBIL score resources put this update in context.