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

Post Office Deposits Interest Rates

Best SIP Funds to Invest Online   SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich For further information on Top SIP Mutual Funds contact  Save Tax Get Rich on 94 8300 8300 OR You can write to us at Invest [at] SaveTaxGetRich [dot] Com

ELSS Tax Saver

ELSS Stands for Equity Linked Savings Scheme.   ELSS Fund are mutual funds with 3 years of lock in period and offer income tax benefit under section 80C. They are open ended to purchase. Not all Mutual fund Investments are eligible for tax exception. List of Tax Saving Mutual Funds   Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.   Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)   Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications   These Application Forms can be used for buying regular mutual funds also   Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds ) HDFC TaxSaver ICICI Prudential Tax Plan DSP BlackRock Tax Saver Fund Birla Sun Life Tax Relief '96 Reliance Tax Saver (ELSS) Fund IDF

How Tax Deducted at Source (TDS) works?

    THE tax season is here. And if you are an employee you can't blame your employer for deducting large chunks of money from your salary towards tax deducted at source ( TDS ), which he is legally obliged to do. Your bank will also deduct some percentage from your FD interest of Rs 10,000 or more towards TDS! So what is this TDS all about? How is it computed? Are there any changes this year? Read on... What is TDS? TDS reduces your taxable income and could even provide tax relief! The TDS collections account for 40 percent of the total taxes collected in the country. As the name suggests TDS is the amount of tax that is deducted at source in certain types of income . The TDS thus collected is deposited in the Government treasury within a specified time. How is it computed? Some of the types of income where TDS is applicable include salary, interest, rental fee, interest on securities, insurance commission, dividends from shares and UTI/Mutual Funds, commission and brokerage

Modern day balanced mutual fund approach

Buy Gold Mutual Funds Invest Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Call 0 94 8300 8300 (India)   In reality, most balanced funds have a strong tilt towards equity instead of a mix of equity and debt THERE are various types of mutual funds available to investors with specific features. Often investors have a particular idea about a specific type of funds in terms of their features and risks, but that is not what is actually available. Therefore, it is necessary for an investor to understand the actual position before picking up a fund. This requires some work on the part of the investor. One example can be the situation with balanced funds. Name is not representative: One of the first things that an investor has to understand is that the name of the fund is often not representative of its investment pattern. The name often represents only the aim of the fund, and not what it actually is.

Should you invest in tax-free infra bonds?

THOSE looking to save tax should take note of the latest buzz in the debt markets. Power Finance Corporation ( PFC ) and Housing Urban Development Corporation (Hudco) have launched bonds that will help you save more tax than your regular infrastructure bonds. Soon, IRFC and NHAI are likely to follow suit with similar bonds. KP Jeewan, general manager, debt markets, Karvy Stock Broking, says: "The coupon in these bonds are completely tax-free and those in the highest tax bracket can expect an effective yield of 10.75 per cent, compared to the 9.5 per cent a 10-year public sector bond would offer." The PFC and Hudco offerings are of 10- and 15-year tenures, with coupon rates of 7.5 and 7.75 per cent, respectively. Unlike other regular tax-free infra bonds, the tax benefits in these bonds are not capped at ` 20,000. Even besides these tax free bonds, those in the highest tax bracket have had plenty of opportunities to invest in tax saving infrastructure bonds under 80 CCF i
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