Tag: FD interest rates

How a youngster can build a balanced portfolio for life needs

Personal Finance

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Arun is 27 years old. He started working about four years back.

His parents do well financially and are not dependent on him. Both are in government sector and have pensionable jobs.

He wants to contribute ₹5 lakh towards his sister’s wedding that is scheduled after six months. Additionally, he wants to set aside ₹5 lakh for own wedding that he expects to happen in the next 3-5 years. Any excess can go towards retirement.

Arun has bought life cover for ₹1 crore and a private health insurance plan of ₹10 lakh. His parents and sister are covered under separate plans.

His only savings are ₹8 lakh in EPF and ₹15 lakhs in bank fixed deposits. Of this, he has set aside ₹10 lakh towards emergency corpus. This can cover 12-15 months of his expenses.

Further, every month, ₹20,000 goes towards EPF. He can invest another ₹80,000 per month.

He knows he can invest aggressively given his age and income profile, but he is not clear about whether he will be comfortable with portfolio ups and downs.

Recommendations

Arun has got his insurance covered. He must, however, revisit the insurance portfolio once he gets married or assumes a financial liability such as loan. The emergency fund of ₹10 lakhs is robust too.

For his sister’s wedding, he can set aside ₹5 lakh from his fixed deposits. The wedding is too soon to take any investment risk.

For his wedding, he has just given a ballpark. Additionally, the timing is also not very certain. Assuming we have four years to save for his wedding, he will need to invest about ₹11,500 per month to accumulate his wedding fund. He can put this money in a bank recurring deposit or a debt mutual fund.

The rest of the amount (around ₹68,000) can go towards his long-term goals, including retirement. He is already contributing to EPF. Given his age, he must consider allocating money to growth assets such as equities.

At this life stage, it is important not to get bogged down with retirement planning calculations. Many life milestones are yet to come, and the best earning years are ahead of him. His time and energy are better spent on enhancing career and income prospects. From an investment perspective, he just needs to continue investing regularly.

He is new to risky investments and is unsure about his risk appetite. There are a few things that you can learn only through experience. Risk appetite is one such thing. While his age ensures this risk-taking ability is high,behavioural DNA defines his risk appetite otherwise. He wouldn’t know his true risk appetite unless he experiences market ups and downs first-hand.

Two approaches

There are two approaches he can take.

1. Not take any risk. Stick with EPF, PPF and bank fixed deposits. Given his age, such a conservative portfolio is not warranted. Moreover, he would never discover his risk appetite.

2. Take risk but reduce portfolio volatility. This is a better approach.

He can work with an asset allocation approach. From the incremental investments, he can route 50 per cent of the money towards equity and the remaining towards fixed income. He can start with a small allocation and inch up to 50-60 per cent in the equity investments.

After saving for his marriage expenses he can invest another ₹88,500 for long-term savings, out of which ₹20,000 already goes towards EPF. Assuming he wants to go with 50:50 allocation, ₹44,000 from his monthly savings can be in equity products.

For equity investments, he can

1. Start with a large-cap or a multi-cap fund. A simple large-cap index fund will do. Or

2. Pick a dynamic asset allocation fund or a balanced advantage fund. Or

3. Pick a single asset allocation fund that invests in domestic stocks, international stocks, and gold. Or

4. Pick a large-cap index fund, an international stock fund and a gold ETF/mutual funds. This replicates the third approach but is cumbersome to invest for a new investor.

The first approach is simple since picking up an index fund is an easy decision. For the second and third approach, he will have to pick up an actively managed fund and choosing one can be tricky. However, the second and third approaches are likely to be less volatile and easy to stick with. This is just the initial choice. As he gets more comfortable with equity investments, he can add different types of funds in the portfolio.

In the fixed income portfolio, he is already contributing to EPF. He can also invest in PPF. Beyond these two products, he can consider bank fixed deposits or a good credit quality and low duration debt mutual fund. For his income profile, debt MFs will be more tax efficient than bank FDs. However, debt funds carry higher risk than bank FDs.

The writer is a SEBI-registered investment advisor and founder of www.PersonalFinancePlan.in

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RBI holds repo rate; deposit rates may still go up, here’s what depositors should do, BFSI News, ET BFSI

Banking & Finance

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Fixed deposit (FD) investors who were hoping for the Reserve Bank of India (RBI) to hike key rates will have to wait longer as the apex bank has maintained status quo on rates yet again. In its bi-monthly monetary policy meeting, held on August 6, 2021, the RBI has decided not to change the repo and reverse repo rate. The repo rate and reverse rate remain at 4% and 3.35%, respectively.

Repo rate has remained at 4% since May 22, 2020; the lowest it has been since April 2001.

FD investors having been waiting for the key rates to be hiked since interest rates on their deposits have been lowered little by little by financial institutions like banks and NBFCs for the last two years.

However, things could change soon. Many economic indicators including inflation being on the higher side, bigger government borrowing programme, 10-year G-sec yield at around 6.2% etc. are hints that the RBI could hike rates in the near future.

“We expect the timing of first policy rate increase in the future to coincide with confidence that vaccinations provide adequate protection against a relapse,” says Prithviraj Srinivas, Chief Economist, Axis Capital.

In such a scenario some smart moves can help FD investors make the best of the current scenario. Here is how FD investors can enhance return on their deposits.

Short term FD rates may rise first
Whenever the interest rate cycle makes a U-turn from the bottom, it is typically the short to medium term interest rates that are likely to rise first. As far as long-term interest rates are concerned, it will take a little longer for these rates to go up significantly.

“We could see the yield curve gradually flatten with shorter end moving up tad faster than longer end. Markets could start pricing in possibilities of rev repo rate hike, though the policy refrained from any such guidance,” says Lakshmi Iyer, CIO (Debt) & Head Products, Kotak Mutual Fund.

Make the most of short term rate hike
If you are planning to book an FD now or are looking to renew your existing FD, then it will be better to go for shorter term deposit, say one year or lower, so that your deposit is not locked at a lower rate for long. Whenever the short to mid term rates rise, you can start increasing the tenure of the FDs accordingly.

Also Read: FD interest rates: Here are the top 5 bank fixed deposit interest rates

Make an FD ladder to guard against lowest return
If your deposit is up for renewal in the current scenario when the interest rate cycle is close to its lowest point, it could be a stressful situation. However, you can avoid this by creating an FD ladder. To do so you need to divide one big FD into smaller FDs, and book these for different tenures. You can do this in a way that one FD matures each year.

For instance, if you have a Rs 5 lakh FD, you can divide it into 5 parts and book 5 FDs of different tenures of 1 year, 2 years, 3 years, 4 years and 5 years. After one year, when the one-year tenure FD matures renew it for 5 years. After two years your FD with 2-year tenure will mature so you can renew it again for next 5 years. Now repeat this exercise each year and your ladder will be ready. This will ensure that not all of your deposits are locked at the lowest interest rate at the same time and your average return is on the higher side.

Consider floating rate options
When you do not wish to take any chances against the fluctuating interest rate cycle then floating rate FDs and floating rate bonds are good options if you want to lock in your funds for the long term.

Here is how floating rate FDs can help you
Many banks and non-banking financial companies have started offering floating rate fixed deposits. The interest rate on such a deposit is linked to a benchmark and the interest rate moves in tandem with the movement in the benchmark rate.

Indian Overseas Bank, for example, offers the floating rate FDs for 3-10 year tenures. It has kept the daily average of last six months of 5-year G-Sec rate and 10-year G-sec rate as benchmarks for 3-5 years and 5-10 years tenures, respectively. The 10-year G-sec yield on July 30, 2021, as per the data given by RBI, was 6.20%, which is much better than the FD rates of most large banks.

If you are not a senior citizen, then the best interest rate that you can get from a big bank will be around 5.25-5.5%. For instance, SBI is offering an interest rate of 5.40% on FD with tenure above 5 years to 10 years.

So, the floating rate option appears to be giving better interest rate of 6.20% (if the 6 months average is also the same) even in the current scenario. Once the overall interest rate scenario changes and rates start moving up, then depositors will get the real benefit of a floating rate FD as the interest rate on these FDs will also go up.

Invest in RBI floating rate bond for non-cumulative deposit
If you are a senior citizen and are looking for an option that gives you a regular income, then you should go for RBI Floating Rate Bonds. This bond is currently giving a return of 7.15% which higher than bank FDs. It has a tenure of 7 years and pays interest semiannually. Though senior citizens have better options like SCSS and PMVVY, however, they cannot invest more than Rs 15 lakh each in these two options. So the RBI Floating Rate Bond is a good option for those senior citizens who have exhausted the investment limit in the SCSS and PMVVY.

Also Read: Government launches 7.15% floating rate bonds: Here’s all you need to know

Also Read: RBI floating rate bonds interest rate to remain 7.15% till June 30, 2021

Rate hike on the horizon
Signs of an interest rate reversal have been visible since the early part of 2021. Though the central bank did not change the repo rate since May 2020, it increased the Cash Reserve Ratio (CRR) twice, from 3% to 3.50% on March 27 and again to 4% on May 22 in 2021. Increase in CRR is an indication of the central bank’s intention to suck liquidity from the system which can push rates up.

Other than this, certain banks, over the past few months have started hiking FD rates. On January 8, 2021, the State Bank of India (SBI) announced a marginal increase in its bulk deposit interest rate above Rs 2 crore by 0.1%. It increased it for deposits with tenures ranging from 180 days to 2 years.

In April, private lender HDFC raised its deposit rates by 10-25 basis points. SBI and housing finance company, HDFC, are often seen as trend setters as far as interest rates on loans and deposits are concerned.



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Here is the latest FD Interest rates of banks, BFSI News, ET BFSI

Personal Finance

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Fixed deposits (FDs) are financial instruments provided by banks or NBFCs that offer investors better interest rates than the regular savings accounts. FDs are considered one of the safest investment options and are also called term deposits as they are booked for a fixed term that may range from 7 days to up to 10 years.

Latest rates being offered by some of the top Financial Institutions:

Banks FD Interest Rates

HDFC Bank 2.5% to 5.5%
ICICI Bank 2.5 to 5.5%
Axis Bank 2.5% to 5.5%
Kotak Mahindra Bank 2.5% to 4.5%%
SBI 2.9% to 5.4%
Bank of Baroda 2.8% to 5.1%
Bajaj Finace 6.1% to 6.7%
HDFC 5.85% to 6.25%
PNB Housing Finance 5.9% to 6.7%

State Bank of India
On FDs between 7 days and 45 days, SBI gives 2.9% interest. Between 46 days and 179 days, the interest is 3.9%. FDs of 180 days to less than one year will get you an interest of 4.4%. For deposits with maturity between 1 year and up to 2 years fetch 5% interest. FDs with tenor 3 years to less than 5 years give 5.3%, while those maturing in 5 years and up to 10 years give 5.4 percent.

HDFC Bank
On FDs between 7 and 29 days, HDFC Bank gives 2.50% interest. For 30 to 90 days, it is 3.00%. For 91 days to 6 months, the interest rate will be 3.50%. For FDs of 6 months 1 days to 1 day less than a year, the interest is 4.40%. For 1 year it is 4.90%. For 1 year 1 day to 2 years, you can get an interest of 4.90%. For 2 years 1 day to 3 years, the rate is 5.15%. On FDs between 3 year 1 day and 5 years, you can enjoy an interest rate of 5.30%. And FDs maturing between 5 years 1 day and 10 years will fetch you 5.50%.

ICICI Bank
On FDs between 7 and 29 days, ICICI Bank gives 2.50% interest. From 30 to 90 days, it is 3.00%. From 91 days to 184 days, the interest rate will be 3.50%. For FDs of 185 to 290 days to less than 1 year, you can get interest of 4.40%. For 1 year to 389 days to 390 days upto 18 months, the rate is 4.90%. On FDs between 18 months upto 2 years, you can enjoy interest rate of 5%. From 2 years 1 day upto 3 years, the interest rate is 5.15%, whereas for 3 years 1 day upto 5 years it is 5.35%. For 5 years 1 day to 10 years, the interest rate is 5.50%.

Axis Bank
For Axis Bank, the FDs between 7 and 29 days is 2.50%, and from 30 days to 3 months it is 3.00%. From 3 months to 4 months interest rate is 3.50%, 4 months to 6 months interest rate will be 3.75%, and from 6 months upto 11 months and 25 days it will be 4.40%. For FDs from 11 months and 25 days upto 1 year 5 days it is 5.15%. On FDs between 1 year 5 days and upto 18 months the interest rate will be 5.10% whereas from 18 months upto 2 years it will be 5.25%. From 2 years upto 5 years the interest rate on FDs is 5.40% and 5.50% from FDs for 5 to 10 years.

Kotak Bank
For Kotak Bank, the FDs between 7 to 30 days is 2.50%, and from 31 to 90 days it is 2.75%. From 91 to 179 days the FD interest rate is 3.25% and from 180 to 364 days it is 4.40%. For FDs between 365 to 389 days the rate is 4.50%. From 390 to 391 days it is 4.75% whereas it is 4.75% from 23 months to 23 months and 1 day less than 2 years also. From 3 to 5 years it is again 4.75%. From 5 to 10 years it is 4.50%.

Senior citizen FD rates
FD interest rates vary from bank to bank depending on their tenure, amount, and type of depositor. Senior citizens, who are above 60 years, get special interest rates on their fixed deposits, which are often 0.5% above the prevailing interest rates.

Timely closure
Timely closure refers to closing the fixed deposit account at the time of its maturity only. When closed upon maturity date, the bank pays back the principal amount with the interest accrued over the tenure chosen.

Premature withdrawal
Premature withdrawal or breaking of FD is usually discouraged by lenders, and in such a case they levy a penalty along with paying back the principal amount and interest at a lower rate. However, in case of emergencies, certain banks do waive off the penalty.



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Here are the latest FD Interest rates offered by top banks, BFSI News, ET BFSI

Personal Finance

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Fixed deposits (FDs) are financial instruments provided by banks or NBFCs that offer investors better interest rates than the regular savings accounts. FDs are considered one of the safest investment options and are also called term deposits as they are booked for a fixed term that may range from 7 days to up to 10 years.

Given below are the latest interest rates offered by top banks for tenures ranging from 7 days to 10 years as of December 2020.

State Bank Of India
On FDs between 7 days and 45 days, SBI gives 2.9% interest. Between 46 days and 179 days, the interest is 3.9%. FDs of 180 days to less than one year will get you an interest of 4.4%. For deposits with maturity between 1 year and up to 2 years fetch 4.9% interest. FDs with tenor 3 years to less than 5 years give 5.3%, while those maturing in 5 years and up to 10 years give 5.4 percent.

HDFC Bank
On FDs between 7 and 29 days, HDFC Bank gives 2.50% interest. For 30 to 90 days, it is 3.00%. For 91 days to 6 months, the interest rate will be 3.50%. For FDs of 6 months 1 days to 1 day less than a year, the interest is 4.40%. For 1 year it is 4.90%. For 1 year 1 day to 2 years, you can get an interest of 4.90%. For 2 years 1 day to 3 years, the rate is 5.15%. On FDs between 3 year 1 day and 5 years, you can enjoy an interest rate of 5.30%. And FDs maturing between 5 years 1 day and 10 years will fetch you 5.50%.

ICICI Bank
On FDs between 7 and 29 days, ICICI Bank gives 2.50% interest. From 30 to 90 days, it is 3.00%. From 91 days to 184 days, the interest rate will be 3.50%. For FDs of 185 to 290 days to less than 1 year, you can get interest of 4.40%. For 1 year to 389 days to 390 days upto 18 months, the rate is 4.90%. On FDs between 18 months upto 2 years, you can enjoy interest rate of 5%. From 2 years 1 day upto 3 years, the interest rate is 5.15%, whereas for 3 years 1 day upto 5 years it is 5.35%. For 5 years 1 day to 10 years, the interest rate is 5.50%.

Axis Bank
For Axis Bank, the FDs between 7 and 29 days is 2.50% and 30 days to 3 months is 3.0%. From 3 months upto 6 months, the interest rate will be 3.50%, and from 6 months upto 11 months and 25 days it will be 4.40%. For FDs from 11 months and 25 days upto 1 year 5 days it is 5.15%. On FDs between 1 year 5 days and upto 18 months the interest rate will be 5.10% whereas from 18 months upto 2 years it will be 5.25%.

Senior citizen FD rates
FD interest rates vary from bank to bank depending on their tenure, amount, and type of depositor. Senior citizens, who are above 60 years, get special interest rates on their fixed deposits, which are often 0.5% above the prevailing interest rates.

Timely closure
Timely closure refers to closing the fixed deposit account at the time of its maturity only. When closed upon maturity date, the bank pays back the principal amount with the interest accrued over the tenure chosen.

Premature withdrawal
Premature withdrawal or breaking of FD is usually discouraged by lenders, and in such a case they levy a penalty along with paying back the principal amount and interest at a lower rate. However, in case of emergencies, certain banks do waive off the penalty.



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