In June, the RBI’s monetary policy committee has changed its stand “neutral” from “compatible” because the central bank is concerned about development and is ready to use interest rates and liquidity to boost demand. Apart from this, as banks are reducing interest rates on deposits, investors should invest in bank deposits for long periods.
At a time when loan funds are reporting money degradation, investors are looking at bank deposits to park money faster. At the end of June this year, gross deposits grew by 10.3% compared to 8.4% during the same time last year. Conversely, in June alone, debt outflows of Rs 1.7 lakh crore have been seen.
Banks reduced FD interest rates
Last week, State Bank of India had cut its fixed deposit rate (FD) by 75 basis points in all the working hours. The bank has sharply cut the interest rate on short-term deposits of less than a year. At the time of seven to 45 days, the bank has reduced the rate from 5.75% to 5%.
For a period of 46 days to 179 days, the bank has reduced the interest rate from 6.25% to 5.75%. For deposits less than one year to less than two years, the bank has cut interest rates from 7% to 6.8%. In less than five years for the matured FD in three years, the bank has reduced the interest rate from 6.7% to 6.6% and for the deposit amount in five years, it has reduced the rates from 6.6% to 6.5% Has.
Even in May this year, the country’s largest lender reduced interest rates on fixed deposits for some select maturities. Private sector banks such as Kotak Mahindra Bank, HDFC Bank, and Axis Bank have also reduced their interest rates for deposits.
A recent Carer Rating report says that the bank deposit increase will benefit partially from the current crisis in non-banking financial companies, where the loan funds have been affected, and the families are likely to return to the bank deposit. However, the reduction in rates will make deposits for savers less attractive.
Small savings are attractive
Investments in risk-contrast investors post office deposits seem more attractive. For example, the interest rate on deposits of one year, two years, and three years is 6.9%. For five years of deposits, the current interest rate is 7.7%. The interest rate on the Public Provident Fund (PPF) is 7.9%, the 5-year NSC is 7.9%. Sukanya Samriddhi Account will get an interest rate of 8.4% per annum.
There is no limit to investment in post office time deposits, and multiple accounts can be opened at any post office across the country. For individuals, PPF is the most preferred investment option and is tax-free at all stages. A resident can open a PPF account, and the maximum investment limit is Rs 1.5 lakh. The PPF account is mature after 15 years, and after that, every five years can be renewed. Non-residents can not open a new account, but without the extension, they can continue their existing account till their maturity.
The 5-year monthly income plan (MIS) is one of the popular investment instruments for those seeking a regular income flow every month. In a single account, one invests Rs 4.5 lakh and up to Rs 9 lakh in case of a joint account. The interest rate is 7.6%. Those who want to reinvest the monthly interest income they can open a recurring deposit account for five years, which will give an interest of 7.2% in the quarter.
Stay alert for liquid money, company deposits
While deposits can give investors more returns, they have become risky because they can pay interest and even default on the principal. Many real estate companies have defaulted on repayments in the last few years, and now the non-banking financial companies are also making defaults.
For example, Dewan Housing Finance Ltd (DHFL), hungry by liquidity, has closed all premature withdrawal of deposits. It has also stopped accepting new public deposits and renewal of existing deposits. The fixed deposit liability of the company is Rs 12,000 crore, which has also been downgraded by rating agencies.
Company Fixed Deposits are Unsecured Loans, where the principal and interest repayment is not guaranteed. In case of any defaults or delays, investors have little support. An investor should analyze financial statements, company performance, and management to make an informed decision before investing in a company deposit.