Amid the Indian stock market extending its losing spree for the sixth straight session, portfolio diversification has become the talk of the town. It has once again become clear that one cannot just have exposure to risky assets. Investors should also put some money in bank fixed deposits (FDs), which are considered one of the safest and most secure ways to build up your savings while earning some interest on your money. Although the rates are not as lucrative as compared to stocks, mutual funds, and SIPs, there is a guaranteed return and the money is safe. According to experts, a significant arbitrage exists between the nominal interest rate on FDs and retail inflation, making them attractive for investment.
According to Anshul Gupta, Co-Founder and Chief Investment Officer, of Wint Wealth, term deposit rates have risen to their highest in the past five years as banks leverage strong credit demand. Moreover, small finance banks offer 1-2% additional interest on term deposits to compete with their established peers.
“Senior citizens in low or zero tax brackets can benefit from this scenario. Suppose a senior citizen in the zero tax bracket invests in a 1001-day FD in Unity Small Finance Bank. He/She can get a 9% per annum interest rate compared to 5.02% annual retail inflation- marking a post-tax gain of 3.98%,” said Anshul Gupta.
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It is an excellent time for retail investors to lock in the FD rates for 3-5 years, suggested Gupta.
Floating rate FDs
Recently, some banks have also started floating rate FDs. As per Anshul Gupta, investors should avoid that since the rates are about to peak.
The market expects RBI to start reducing the key interest rates in the next calendar year.
Sensex, Nifty open in red
The stock market continued its downward trend as it opened flat in the red today, further extending the ongoing bearish sentiment. The Sensex witnessed a significant drop of 481.30 points, opening at 63564.74, while the Nifty was down by 156.45 points, opening at 18964.75. The 30-stock index has been under-sell of heat for the last six days.
“Long-term investors do not need to do much and the only thing they can do is to add on in dip and stay with quality. The market may look reasonable in terms of the valuation if it corrects 300-400 points more from here and geo-political risk stablises although no one can predict the top or bottom in the short term,” said Mukesh Kochar, National Head of Wealth at AUM Capital.
FDs emerging as stronger product than longer-duration debt mutual funds
According to the recent Mutual Funds Report by Motilal Oswal Financial Services bank FD is emerging to be a stronger product than longer-duration debt mutual fund schemes.
“On the debt side, the momentum remains weak as large institutional investors are waiting on the sidelines given the geopolitical tensions across the world. FD is emerging to be a stronger product vs. longer-duration MF schemes. However, demand remains strong for the shorter duration (< 1 year) schemes,” the report said.
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Updated: 26 Oct 2023, 01:15 PM IST