Time to look at long term interest bearing securities

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Time to look at long term interest bearing securities
With the RBI dropping the repo rates by 50 basis points, and banks and institutions not yet reacting to a cut in deposit rates, it may just be the right time to park money in long term fixed interest yielding instruments.

Banks are likely to study their own asset liability mismatch and decide whether there would be a necessity to cut deposit rates. But, given the steep cut of 50 basis points, against the market expectations of about 25 basis points, it does leave banks with some ability to maneuver and push interest rates lower.

Some analysts are expecting the RBI to cut repo rates even further during the course of the year. Should this happen interest rates are likely to trend significantly lower, making this an ideal time to park money in fixed interest yielding instruments over a longer maturity.

So, if an investor has a fixed deposit that matures in the next six months to one year, chances are that he would get lower rates when he renews them. He could well consider breaking the deposit (after examining how much he loses) and invests the same in a longer term tenure.

The prices of some listed tax free bonds that are traded on the stock exchanges have started moving up in anticipation of decline in interest rates on various fixed interest yielding instruments.


Read more about: repo rates, rbi
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