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In times of rising interest rates, fixed deposits (FDs) are highly attractive to risk-averse investors looking for guaranteed returns.
The Reserve Bank of India (RBI) has consistently raised interest rates throughout 2023 in an effort to combat inflation. This results in higher borrowing costs, encouraging both individuals and businesses to save more, which in turn increases interest rates on savings products such as FDs. Global economic uncertainty and rising geopolitical tensions are also contributing to the upward trend in interest rates, as investors actively seek safe havens for their funds.
In anticipation of further interest rate rises in 2024, a significant number of individuals are considering FD investment. While this view has merit, it is notable that there is no indication or information regarding a potential increase in FD rates.
RBI’s recent decision to temporarily suspend repo rate hikes has important implications for individuals aiming for FD rate hike in 2024. A series of consecutive repo rate hikes from May 2022 to February 2023 had a significant impact on FD interest rates. The increased cost of borrowing from the RBI prompted banks to increase lending rates, which in turn led to an increase in his FD rates as an incentive to attract deposits. Moreover, the spike in inflation has forced banks to increase FD interest rates to maintain real investment returns for depositors.
benefit from rising interest rates
A number of small finance banks (SFBs) in India are currently offering attractive FD interest rates of over 8% and can go as high as 9% for certain periods and deposit amounts. This is in contrast to the interest rates offered by big banks and traditional savings accounts.
The hike in FD interest rates by major banks may be over, but we cannot completely rule out the possibility of a select few banks raising FD interest rates. This has left many potential investors wondering whether now is the time to set aside part of their savings in FDs.
Priyadarshini Moreshwar Mulye, SEBI Registered Investment Advisor and Founder, ARTHA Fin Plan, “At this time, you may look for an FD for goals such as creating an emergency fund or earning a fixed income. For example, a short-term FD can be aligned with an emergency fund. Investors, especially senior citizens can invest to get the required bonds. However, FD investment INROnly 500,000 people are insured under DICGC. When investing, you should consider appropriate diversification, your own risk appetite, goals, and tenure. ”
Commenting on the recent upward trend in India’s FD rates, experts say that although there has been a rise in recent months, rates have not yet reached their historical peak. Mr. Bilal Bhatt, Founder; money mantra, “Inflation rate in India is currently high at around 6.8% and ideally, interest rates on fixed deposits should be higher than inflation to provide real returns on investments. Although current interest rates are higher than inflation. , it is better to compare future interest rates before locking in money for a long period of time.”
Assessing your risk profile is important
You can’t afford to keep your money tied up in traditional deposits, even though sudden emergencies could arise and redeem these deposits prematurely. Bhatt explains: “Assess your need for access to investment funds. Term deposits usually have a lock-in period and there are often penalties for early withdrawals. The likelihood that you will need the money in the near future.” If you have, you may be better off with more liquid investments. Apart from that, you cannot ignore your appetite for market-related risks. A deposit might be a good option.”
Mr. Rishabh Palak, Chief Play Officer; NRP Capitals, “The decision whether to invest in FDs, stocks, gold or any other investment product, especially at this moment or at any time in fact, should always be based on one’s risk profile. Therefore, consider your asset allocation according to your goals and decide whether you need a fixed allocation and whether you need FDs or debt or other debt installments.”
Discussing whether FD investing is worth considering for investors who are serious about securing long-term funding, Mr. Bhatt added, “There are other options like mutual funds, stocks, gold, etc. that have the potential to give higher returns. Please consider your investment options,” he added. However, these options also come with higher risks compared to term deposits. ”
Please reconsider your FD investment
Avoid rushing to invest money in FDs amidst the current turmoil. Instead, explore the market to find the most favorable interest rate. Compare your options as different banks and non-banking financial companies (NBFCs) offer different rates. Choose a time period that fits your financial goals and assess how long you can comfortably commit the funds. We recommend investing only a portion of your savings. Diversifying your portfolio is important for effective risk management.
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