Yield surge hits debt funds after RBI hikes lending rate in surprise move

Investors should be ready for volatility in long-duration securities, say experts.

The yield on the 10-year government security (gsec) increased by more than 28 basis points after the Reserve Bank of India’s (RBI’s) on Tuesday raised the policy repo rate by 40 basis points to 4.40 per cent. The spike in yield has impacted the returns of debt funds.

Data from Value Research shows that average returns of medium- to long-duration funds and gilt with 10-year constant duration funds have registered a one-day fall of -1.19 per cent and -1.69 per cent. The quantum of fall in returns is less in shorter duration funds and liquid funds.

On Thursday, the 10-year