Skip to main content

Don’t Keep Cash Idle In Banks

The Reserve Bank of India (RBI) released discussion papers on savings rate deregulation last week. The apex bank has given time for public comments till May 20, and will decide the further course of action based on the feedback. In the Annual Credit Policy on May 3, the bank raised interest rates on savings bank deposits by 50 basis points (0.5 per cent) with immediate effect. So, savings bank account holders will now earn four per cent on their balance, instead of 3.5 percent earlier.

Even if the rise is being considered a precursor to deregulation, bankers aren't sure when the latter will be implemented. Over time, RBI has deregulated all other rates, except savings bank rates across banks. The last time RBI mandated a change in the savings bank rate was 2003.

In the present high interest rate environment, deregulation or freeing rates would mean an interest higher than the four per cent on your savings deposit. Each bank would decide on its own rate of interest on savings accounts. For customers, it means being able to pick and choose the best rate available in the market. However, this could lead to unhealthy competition in the banking industry.

At the same time, interest rates will have to go well above inflation for real gains. Interest rates on savings deposits have mostly yielded negative returns, given that inflation has been soaring for almost a year. RBI expects inflation to fall back to six per cent only in March 2012. It means even the new rate of four per cent will yield negative returns.

Therefore, this option should not be used for investment. At best, you can keep you emergency funds in savings account.

For the risk-averse, investment could be done in other better return yielding avenues such as fixed deposits (FDs).

At present, State Bank of India is offering 7.75 per cent on a one-year deposit and the highest 9.25 per cent on a 555-day deposit. ICICI Bank is giving 7.50 per cent for one year and 9.25 per cent for 590 days. Lakshmi Vilas Bank is offering 10 per cent for one to two years.

And, with RBI raising key policy rates, FD rates may go up further. For instance, IDBI Bank raised deposit rates by 50 basis points following the announcement.

Debt funds are another option for those with lower risk appetite. Debt funds such as liquid, liquid-plus or ultra short-term schemes with lower maturity are giving above average returns in the present high interest rate regime. And, this is only likely to benefit with RBI's last rate increase.

At present, ultra short-term funds have returned 6.65 per cent in the last one year, according to mutual fund tracking agency, Value Research. They invest in debt and money-market instruments with a maturity ranging from 90 days to one year. Although they are riskier than liquid funds, investors get better and more tax-efficient returns. Funds have given 6.57 per cent.

Short-term funds investing in debt and money market instruments for one-two years have offered 5.48 per cent. Short-term debt funds will give better returns because of the constant churn that fund managers have to do. Income funds have returned 5.08 per cent.

Gilt funds have given over four per cent. These primarily invest in government securities issued as a part of the government's borrowing programme. Best for those who seek safety and liquidity, the downside is that their prices fluctuate sharply due to higher sensitivity to interest rate movements.

Those with slightly higher risk-taking ability could invest in debt-oriented hybrid funds, which invest up to 65 per cent in debt instruments and remaining in equity. Thus, protecting the downside and giving the equity boost to your portfolio. Debt-oriented hybrid funds have returned 5.46 per cent in past year. These will also give tax benefit of 10 per cent without indexation and 20 per cent with indexation.

Though the savings rate has been increased, it's better to keep money invested in higher paying instruments

In the Annual Credit Policy on May 3, the bank raised interest rates on savings bank deposits by 50 basis points with immediate effect. So, savings bank account holders will now earn four per cent on their balance, instead of 3.5 per cent earlier.

High inflation will erode high returns from savings account

Savings account not for investment; at best for emergency funds

Risk-averse investors could invest in fixed deposits; annual returns = over nine per cent (average)

Rise in policy rates will push up fixed deposit rates further

Debt funds are another option; annual returns = 6.50 per cent

Those with higher risk taking ability could invest in debt-oriented hybrid funds

Popular posts from this blog

Retirement planning from a long-term perspective

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds     `HOW green was my valley'. This title comes from a movie I had watched many years ago. A little boy's journey into adulthood and the story of a Welsh valley's turn of-the-century descent from pristine paradise to despoiled coal mining.   I thought of the title because it is comparatively reflective of a person's life ­ the glorious years when he is earning and the sun down years when he is not having his regular job and, hence, his living standards comes down. The reason is a combination of things. Inflation of food items, transport, increase in health related costs in the later years of life and increase in expenses in almost all basic amenities of life. In India, the social security system is almost non-existent. In some states, wherever it is available, the scales of benefits are extremely modest...

NPS for Tax Saving

The NPS is a great way to save tax if you don't mind locking in your money till you retire. Till last year, the taxability of the NPS was a big issue. But last year's Budget changed the rules and made 40% of the corpus tax free. The PFRDA wants that the balance 60% to be exempt from tax as well. The emphasis is on increasing pension coverage. So, allowing EEE status (to NPS ) is our major demand (in the Budget NPS is especially useful for investors who may have exhausted the `1.5 lakh investment limit under Section 80C but want to save more.   Another way the NPS can cut tax is by rejigging the salary.If a company deposits up to 10% of the basic salary of an employee in the NPS under Section 80CCD(2d), the amount will be tax free. Turn to page 28 to see how much tax this can save. However, the take-home pay of the employee will come down. Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 10 Tax...

BHIM App

What is BHIM? BHIM stands for Bharat Interface for Money , which is an easy way of transferring money from one bank account to an other via a smartphone using the Unified Payments Interface (UPI) platform . It is an instant payments application meant for sending money as well as requesting for payments. How is it different from UPI? BHIM is no different than UPI. But in the case of BHIM, customers don't have to download mobile applications of multiple banks, instead a single BHIM app downloaded from Android Play Store is sufficient. Other than that, payments can be made through a virtual payments ID or through account number and IFS code, same as UPI. What you need to use BHIM? BHIM can be used across an droid smartphones with version 4.0 and above, also it will be made available on iPhones and Windows smartphones very soon. Further, for feature phone users they need to use the USSD feature by dial ing *99#. Why was the need for BHIM felt when UPI is already in place? With various...

NRI from Canada and US Invest in Mutual Funds in India

Investing in Indian mutual funds by NRIs from US and Canada As of December 2016, eight Indian fund houses were accepting investments from US/Canada-based NRIs Most of the Indian mutual fund houses have stopped accepting funds from US and Canada based NRIs due to regulatory restrictions. This is because the Foreign Account Tax Compliance Act (FATCA) makes it compulsory for all financial institutions in the world to report comprehensive details of all transactions involving US/Canada residents, (including non-resident Indians) to the US & Canada Government. Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund

HDFC FOCUSED EQUITY FUND - PLAN A NFO

HDFC FOCUSED EQUITY FUND - PLAN A NFO opens today               Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara Robeco Equity Tax Saver 8. IDFC Tax Advantage (ELSS) Fund 9. Axis Tax Saver Fund 10. BNP Paribas Long Term Equity Fund You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds Invest in Tax Saver Mutual Funds Online - Invest Online Download Application Forms For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call --------------------------------------------- Leave your comment with mail ID and we will answer them OR You can write to us at PrajnaCapital [at] Gmail [dot] Com OR Leave a missed Call on 94 8300 8300 --------------------------------------------- Invest Mutual Funds Online Invest Any Mutual Fund Online Download Mutual ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now