On Tuesday, there was a fall over 17 basis points on the yield on the government ten years bonds. The fall in bond yields led to the rise in NAVs of Scheme G of the National Pension System (NPS). Scheme G of NPS invests in government bonds and related securities. It is a low-risk investment option. NAVs of NPS Scheme G, Tier I Account rose by up to 1.65 per cent in a single day on 1 September. Scheme G of LIC Pension Fund witnessed the highest NAV increase of 1.65 per cent in one day, followed by the government bond scheme of HDFC Pension Fund, which rose by 1.62 per cent.

The bond yields fell the most in three months after the Reserve Bank of India (RBI) announced measures to allay the market fears over rising products and higher borrowing programmes. On Tuesday, the 10-year bond yield was trading at 5.944 per cent, its steepest decline since 13 May, from its previous close of 6.117 per cent. Bond yield and prices move in opposite directions. NAV of Kotak Pension Fund -Tier I Scheme G rose by 1.56 per cent in one day. SBI Pension Fund’s government securities scheme saw an increase of 1.46 per cent, ICICI Prudential Pension Fund rose 1.44 per cent, UTI Retirement Solutions increased by 1.42 per cent and Birla Sun Life Pension Schemes’ Scheme G NAV jumped by 1.37 per cent on 1 September. Bond yields and prices have an indirect relationship. As yields move up, prices of existing debt schemes go down, as the new securities become more favourable due to higher interest rates. That means, the NAV of the debt mutual fund scheme falls when the yields of securities go up and vice versa. Among its measures, RBI increased the held to maturity limit from 19.5 per cent to 22 per cent. It also announced additional open market operations (OMO) worth Rs 20,000 crore and term repo operations worth Rs 1 trillion to infuse liquidity into the market.

To reduce the cost of funds for banks, RBI also allowed them to swap the funds raised under long term repo operations (LTRO) at 5.15 per cent with new funds made available under the 1 trillion repo window at 4 per cent.