Should You Stay in Liquid Funds or Move to Low Duration Funds in Falling Rates?

With interest rates falling, low-duration debt funds offer better short-term return potential than liquid and overnight funds by benefiting from bond price gains.

India’s inflation rate has been steadily declining, falling from a peak of 6.21% in October 2024 to 3.61% in February 2025. With inflation easing and price pressures moderating, the Reserve Bank of India (RBI) has begun shifting its monetary policy stance.

Recently, the RBI implemented a 25-basis-point rate cut, lowering the benchmark interest rate from 6.5% to 6.25%. This move marks the beginning of a potential easing cycle aimed at supporting economic growth. With inflation now within the central bank’s target range, further rate cuts are widely anticipated in the coming months to boost credit demand, investment, and consumption.