Folks who depend on fixed income yielding instruments like fixed deposits, bonds and NCDs, should be a little worried, as interest rates are likely to dip further.
From April 1, banks may reduce deposit rates, as interest rates on small savings of post office schemes, has been revised with effect from April 1, 2016.
|Instrument||Current interest rates||Interest from April 1, till June30|
|PPF interest rate||8.7%||8.1%|
|5 year senior citizen scheme||9.3%||8.6%|
|Kissan Vikas Patra interest rate||8.7%||7.8%|
|5 year NSC interest rate||8.7%||8.1%|
|PPF interest rate||8.5%||8.1%|
|Sukanya Samriddhi Account Scheme Interest Rate||9.2%||8.6%|
|5 year Monthly Income Account Scheme||8.4%||7.8%|
|5 year recurring deposit||7.4%||8.4%|
So far, banks were not reducing their deposit interest rates, as post office interest rates were higher and if they were to reduce the same, it would mean moving money from bank deposits to post office deposits. Now, with interest rates on post office falling, banks would also reduce their deposit interest rates. This is why you should invest in fixed deposits before April 1, 2016.
Another reason to be investing in fixed deposits before April 1, 2016 is because there is a Reserve Bank of India meet scheduled in the first week of April. It is almost certain that the Reserve Bank of India would cut interest rates in this meeting, as inflation in the economy has been falling.
This means it would give banks another chance to cut interest rates, as post office deposit interest rates would have fallen, giving them very little competition.
What we would suggest, is to go for select deposits from the NBFC space, where interest rates are up to 8.5-9.10 per cent. Among the good NBFC fixed deposit interest rates are Mahindra Finance, Bajaj Finserv, DHFL, which are highly secure and well rated.
Another important thing is to go for a slightly higher tenure, say for example 2-3 years.This means that you would not have to bother of interest rates in the economy falling, as you would have placed deposits at a higher interest rate.