The time has come to transition your Fixed Deposit (FD) investments. what the experts say

Amit Gupta, managing director, SAG Infotech, said fixed-income investors, who were reeling under historically low interest rates only a year ago, are now looking at the benefits of the last significant increase in the repo rate, which is likely to further Will go For Bank FD.

Have interest rates on FD reached a peak?

Gupta said that although opinion is divided on peak rates, it is clear that this is a good time for foreign direct investors to assess their holdings. choosing the optimal strategy for FD investment The expected direction of FD rates needs careful consideration.

No more rate hikes this year?

Nirav Karkera, head of research at Fisdom, said the central bank is expected to hold on for an extended period. However, a further slippage on the inflation front could make a case for another rate hike, with the transmission of cumulative policy rate hikes in the current cycle to be affected by the quantum. The current environment is characterized by a strong credit demand, and banks may need to evolve their fixed deposit offers with higher rates due to the apparent insufficiency of funds to meet this demand.

“Competition among banking peers will only strengthen the case for higher deposit rates. With rates being raised by other small savings investment instruments, banks may need to increase their interest offers to secure more deposits,” he said.

Looking at the trajectory of interest rates, it is already clear that the final repo rate will be 6.5%, and no further rate hikes are expected this year, according to Amit Gupta, about the possibility of additional policy actions by the RBI. Notwithstanding any statement made.

Should you break your FD?

Amit Gupta said that it can be a good idea to break an old, long-term fixed income investment (FD) now and reinvest the income, especially if there is a lot of time left in it. Therefore, it is imperative to do a net profit analysis before taking any decision.

Apart from offering rates much higher than those offered by large banks, smaller private banks and smaller financial organizations have been quick to announce hikes in interest rates. If you want to benefit from the high interest rates offered by these risky institutions, you must be sure that 5 lakh in deposit protection provided by DICGC will cover your risk appropriately.

Long term deposits do not offer attractive interest rates

Several leading private and public sector banks have already increased their interest rates for medium term deposits of up to three years on an average. However, long-term deposits do not offer as attractive rates of interest, and it may take some time for higher rates to be implemented on long-term deposits, said Nirav Karkera.

FD investors should consider ladder strategy

Meanwhile, investors looking to invest in bank fixed deposits for the long term can consider a ladder strategy. It involves dividing the investible amount into three or four parts, which differ in terms of amounts and tenures. An investor can decide the amounts and tenures based on his/her requirements. However, it would be a good starting point to keep about half the corpus in very near term deposits of about three to six months. This provides flexibility to reinvest at higher rates as interest rates are more effectively transmitted over the next few months, while also providing an opportunity to take decisions based on the outcome of the next MPC meeting. For residual capital, one, two, and three-year ladders should offer investors the upside of locking in higher rates, while potentially having the flexibility to reinvest at higher rates as near-term deposits mature. Is. Those with a clear deadline can optimize the investment tenure with the deposit offering the highest interest and closer to the target deadline.