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Home / Money / Personal Finance /  NPS govt bond scheme's NAVs soar over 1.5% in a day

Yields on the government 10-year bonds fell over 17 basis points on Tuesday. The fall in bond yields led to the rise in NAVs of Scheme G of 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 Acount rose by up to 1.65% in a single day on September 1. Scheme G of LIC Pension Fund witnessed the highest NAV increase of 1.65% in one day, followed by the government bond scheme of HDFC Pension Fund which rose by 1.62%.

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 yields and higher borrowing programmes.

On September 1, the 10-year bond yield was trading at 5.944%, its steepest decline since 13 May, from its previous close of 6.117%. Bond yield and prices move in opposite directions.

NAV of Kotak Pension Fund -Tier I Scheme G rose by 1.56% in one day. SBI Pension Fund's government securities scheme saw an increase of 1.46%, ICICI Prudential Pension Fund rose 1.44%, UTI Retirement Solutions increased by 1.42% and Birla Sun Life Pension Scheme's Scheme G NAV jumped by 1.37% in one day as on September 1.

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 favorable 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.

Apart from the government bond scheme of NPS, long term debt mutual funds have also seen a considerable rise in their one-day NAVs due to fall in bond yields.

Among its measures, RBI increased the held to maturity limit from 19.5% to 22%. It also announced additional open market operations (OMO) worth 20,000 crore and term repo operations worth 1 trillion to infuse liquidity into the market.

In order 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% with new funds made available under the 1 trillion repo window at 4%.

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