Search for higher rates ends at post offices, govt bonds
MUMBAI: Investors are rushing to lock money into post office deposits and a government bond, which are yet to cut interest rates even as banks lower deposit rates.A bank deposit now pays a maximum of 7%, while post office deposits pay 7.8% and the government bond pays 8%.
"There is a rush amongst investors to lock into longer-tenure products and where there is no announcement of rate cuts so far," said Vikram Dalal, managing director, Synergee Capital.
For retirees and other investors living on interest income from deposits, financial advisors said, the government savings bonds, which have a tenure of six years for small investors, make sense.
"There is no reinvestment risk as you can lock in at a rate as high as 8% for 6 years. It works well for those whose income is not subject to tax or who are in the marginal tax bracket," said Dalal. The minimum investments amount is Rs 1,000 and there is no ceiling on the upper limit. The bonds are issued in physical form.
"The only drawback of this product is that it is illiquid since they are not traded and cannot be encashed in an emergency.However, investors can opt to take a loan on this product, says Anup Bhaiya, MD, Money Honey Financial Services.
Interest rates on bank fixed deposits fell post demonetisation. Banks like SBI, ICICI Bank, HDFC Bank, Kotak Bank have all cut fixed deposit rates by 15-25 basis points (100 basis points is equivalent to 1%).
Post the rate cuts, a five year fixed de posit fixed de posit from State bank of India fetches 6.5%, while HDFC Bank gives 6.75%. Taking a cue from banks, finance companies too have lowered deposit rates. HDFC now offers 7.65% for a five-year deposit, while Gruh Finance is offering 7.5%.
"The banking system is flush with liquidity and there are not enough avenues to deploy money .Given this and expected rate cuts, fixed deposit rates could head even lower in the coming months," says Shankar S, financial planner at Credo Capital.
Source : The Economic Times
