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FD interest rates on the rise: What should be your investment strategy now?

Fixed deposit (FD) interest rates have significantly dropped during the last three years. Currently, the repo rate is at a historic low of 4%, which has not changed since May 2020. This trend has led investors to search for alternative ways to generate income.


Thankfully, there have been small hikes recently in the FD rates of some financial institutions, including the national banks. This hints at the bottoming out of rates and investors need to prepare their strategy to make the most out of this.


So, what are the different techniques you may use to invest for higher returns via bank FDs? Let’s look at some options.


Short or Medium Terms FDs


When the interest rate cycle turns back after bottoming out, it has been noted that short- and medium-term FD interest rates respond quicker to rate change than long-term FDs. Investing in FDs with short or medium-term maturity helps you switch to a higher FD rate. When the rates are expected to go up, you should avoid committing to long-term FDs because you may miss out on the benefit of the rising interest rate. The interest rate may not increase immediately, but it may gradually inch upward. So short-term FDs can keep your FD investments closer to the prevailing interest rate offered by banks, according to Bankbazaar.


Floating Rate FDs


A few banks are offering floating rate FDs to their customers. The interest rate on floating rate FDs may not look attractive compared to the current fixed rate FDs; however, if the rate increases, the floating rate FDs can easily be a winner. Floating rate FDs can be beneficial if you don’t want to get into the hassle of continuously switching old short-term FDs to higher rate FDs.


Diversify New FD Investments Into Bank and Company FDs


When interest rates go up, it’s not only banks that increase their FD rates, but the rates of company FDs are also increased. Diversifying your investment into banks and company FDs can be a good option for better average rates. By diversifying FD investment into banks and company FDs, you can ensure higher returns on your investment. Company FDs offer a higher interest rate, but you need to do your diligence before investing your money.


Use the FD laddering option


FD laddering is an excellent option to ensure a high return on FDs amid the chances of a rise in the interest rate. You can make your own FD laddering strategy by spreading your lumpsum fund into different FDs with multiple maturities.


For example, if you want to invest Rs 5 lakh, you can break it into 5 FDs with a maturity period of 1 year, 2 years, and so on up to 5 years. On maturity, you can use the amount if you have a requirement, or you can continue with the existing laddering by reinvesting the matured corpus into a new FD for 5 years. You may choose different banks, companies and the FD amount while creating an FD laddering strategy.


When the interest rate is expected to increase gradually, you can shift your corpus to an FD that offers a higher interest rate on each maturity. So, you can ensure a higher return on investment in the long term. If you create an FD laddering by investing money in different banks’ deposit schemes, it can also help you get the insurance benefit of up to Rs 5 lakh in each bank.


You must not wait for a rate hike to invest in FDs because it’s not definite when the rate will go up, and there is a chance that it may happen multiple times. So, after each hike, you will get enticed for another rate hike. Until you invest, you’ll lose the return on your corpus. Use these techniques to get the maximum benefit out of your FD investment.


Source: financialexpress

Why Should you Invest in Corporate FDs?

Money doesn’t grow on trees, but the right savings and investment plans can help it grow. The pandemic has triggered a great deal of uncertainty and risk aversion in the way we invest our hard-earned money. Many of us want to turn away from high-risk instruments or lower our exposure to them while increasing our low-risk investments. Debt instruments are considered safe and include bonds, debentures, certificates of deposits, debt funds, fixed deposits, etc.


Keeping your money in a bank is safe, but your savings account will give you a mere 3.5% return. One way to diversify your corpus is bank FDs and corporate FDs. Bank FDs offer a return of 5-5.5%, whereas corporate FDs earn higher returns while maintaining low-risk levels. A corporate FD is similar to a bank FD but gives you a better return with low-risk. Since most of the instruments are rated, corporate fixed deposits have a high degree of safety level. Corporates offer returns of 7.5%-8.5% for a 1 year to 5 year deposit and 8-9% on a cumulative basis.


How do you choose the right company to invest in?


You need to consider 3 parameters:


⦁ Ratings: These term deposits are usually rated for their credibility by a few rating agencies, namely ICRA, CARE, CRISIL, etc. Generally, companies with a AA to AAA credit rating indicate a moderate to high safety of interest payment. As you go lower in the rating chart, the degree of safety reduces.


⦁ Parentage: While assessing the quality of the corporate, we need to factor in the likely support from a higher-rated parent in the event of distress. The number of years in existence and corporate governance standards of the Group. A strong parent can lend comfort to the investor.


⦁ Interest rate: The best part about a company FD is the higher interest rate. The rates paid are comparatively much higher than what is paid for an average bank FD. It is important to check and make comparisons for interest rates before opting for one. Certain NBFCs and companies offer higher interest rates when compared to others for the same tenure. The reason for corporates (or more precisely, NBFCs) offering FD rates that are higher than those of banks is because NBFCs get returns from their lending business which are higher than those earned by banks, and are therefore able to pass these on to depositors. At the same time, NBFCs ensure that their lending operations are within specified parameters and that asset quality is maintained.


Some of the key risks, however, to keep in mind while investing must not be ignored. Make sure that the company has been paying regular interest to its shareholders. The balance sheet of the companies has shown a consistent track record of profits at least for 3 years. With the number of start-ups entering the market rising, make sure the company has been in existence for the last 5 years at least. Ensure they are offering realistic returns (2-3% more than a bank FD).


Do not fall prey to those companies which are offering very high returns, where the risk-reward is unrealistic. Make sure these companies are listed on the stock exchange, companies that are listed will be well regulated. Do not place all your eggs in 1 basket, diversify to limit your risk. Do not opt for very long tenures with lock-ins, invest for 1-2 years and take stock of the performance of timely payments annually. Don’t go by misleading ads, always calculate the CAGR and compare it with others.


Finally, is the timing right for your investment? Choosing to invest when interest rates are high means returns of your FD will be the highest, but also account for inflation. Systematically and periodically investing 10% of your income can prove to be a good strategy in the initial stages of your life and gradually increasing this ratio to 40% as you grow older can be a good strategy in the long run. Investing ultimately is laying out your money now, to get more in the future.


Source: Financialexpress

Earn Up to 7.25% on FD

Earn Up to 7.25% on FD

Deposit (or FD) is a low-risk financial instrument that is offered by banks, post offices, or Non-Banking Financial Companies (NBFCS). 

You can easily invest in a Fixed Deposit and grow your savings at a fixed rate of interest, which is higher than interest rates offered by savings accounts. 

The convenience of investing along with the safety of your deposit can help you plan your short-term and long-term goals easily.

At Bajaj Finance Limited, you get attractive FD interest rates of up to 7.25%, so you can save for your goals easily. 

Investing in a Bajaj Finance Fixed Deposit is easy, as you can invest from the comfort of your home through an end-to-end paperless online investment process.

In today’s times of increasing market volatilities, investing in a Bajaj Finance Fixed Deposit can help you get assured returns and steady growth of capital. 

So you can build your savings with no effect of market fluctuations.

DID You Know? Bajaj Finance is now offering interest rates of up to 7.00% on fixed deposit and 0.25% more for senior citizens. 

What’s more, online investors get 0.10% extra (not applicable for senior citizens) – Invest Online

Benefits of Bajaj Finance Fixed Deposit

Interest Rate                                                                     Ranging from 7% to 7.25%

Minimum Tenor                                                               1 Year

Maximum Tenor                                                              5 Years

Deposit Amount                                                              Minimum deposit of Rs. 25,000

Application Process                                                       Easy online paperless process



What to start early: Investment or Insurance?

Several reasons why you should start investing and also get insurance at a young age. But, at the time when we start our career, with a little income and too many expenses, the dilemma that we often face is should we invest or insure first?

Through this blog, I will try to help you get over this dilemma, i.e. whether to invest or insure first.

Before I get it into explaining whether to invest or insure first, it is important to understand why it is important to start investing and also buy insurance (health and life) early in life.

2 reasons why you should start investing early

Starting your investments early improves your spending habits

At the time when we start earning, our income is quite low. And if we want to save from that little amount of salary that we get, then we have to put restrictions on our spending by creating a budget. Over the years this simple practice becomes a habit, eventually improving our spending habits.

To adopt the simple habit of saving/investing, put away the part of the salary at the start of the month. And, then make a monthly budget with the rest of the money you have in hand. 

Say you earn Rs 30,000 monthly and out of that you want to save Rs 10,000 every month. So as soon as you get your salary, put Rs 10,000 away, and then create a monthly budget with the rest Rs 20,000.

You enjoy the benefit of compounding
For starting your investments early, you stay invested for longer, which automatically increases the benefit of compounding. Let’s understand this with 2 simple examples.

Say you want to save Rs 5 crore for your retirement. Now, with that goal in mind, you start investing in an equity mutual fund from the age of 22. For this, you will have to keep investing Rs 5,500 for the next 38 years, and your total investments would be Rs 25 lakh.

In the second case, the goal remains the same but you start investing in the goal much later, let’s say at 45. For this, you would need to invest Rs 1 lakh every month for the next 15 years and your total investment amount would be Rs 1.8 crore.

This is how compounding works in favor of money over the years.

After looking at the reasons why one should start investing early, let’s understand why it is equally important to get insurance at a young age.

Here as we speak about insurance, we mean both health and life insurance.
Speaking about health insurance, no matter what your age is you should always have health insurance. 

Sickness or some health emergencies can come at any time and if you do not have health insurance, medical expenses can burn a huge hole in your pocket. So you should never delay the process of getting health insurance.

However, we often delay the process of buying a term life reason for very simple but foolish reasons. The common notions are since we are young and healthy or at this stage, as the responsibilities are less, we do not need term life insurance. However, contrary to the popular belief, buying term insurance early on is always favorable.

2 reasons why you should buy term life insurance early

The premium amount is low
The biggest advantage of buying term life insurance early on is the premium amount that you pay is much less as compared to what you would pay if you buy it at a later stage in life.

For example, say you want to buy a policy of Rs 1 crore that would give you coverage till 75 years. If you buy it at 25, the premium amount would be Rs 8,000 annually. At 30, it would be Rs 10,000. And at 45, the premium for the same policy would be Rs 30,000.

Your family gets covered early on
The sooner you buy the term insurance, the sooner your family gets covered. Even if you are not married, your parents might be dependent on you or you might have a loan (vehicle loan, student loan), 

In case you die early then your family will have to bear that burden. Having term insurance ensures your family will not have to go through financial hardship in case something happens to you

So finally, whether to invest or insure first?
So, this is typically a chicken and egg situation – who came first.
To put more aptly, here it would be which one to do first, buy insurance, or start investing? Now, the best thing to do is to do both things simultaneously.

For example, let’s suppose Rajeev is a 25-years-old, and given his monthly income of Rs 40,000, he can take out Rs 10,000 each month, i.e. Rs 1.2 lakh annually, for savings/investments/insurance. So what should he do?

Here is how you can allot the money towards insurance and investments

Health insurance: It is a good practice to have at least 6 times your monthly salary as your health insurance coverage. By that logic, since Rajeev’s monthly income is Rs 40,000, his health coverage should be between Rs 2.4 to Rs 2.5 lakh. At the age of 25, the yearly premium amount for Rs 2.5 lakh health insurance would be about Rs 5,000.

Term life insurance: Since Rajeev doesn’t have a lot of liabilities, a term cover of Rs. 1 crore would be enough. Say the term life insurance cover that you need at this stage is Rs 50 lakh. The premium for a Rs 1 crore term policy would be around Rs 8,000 annually.

Investments: The rest of the Rs 1.1 lakh you can invest in Mutual Funds. Since Rajeev is young, he can take risks, and therefore you should invest in equity mutual funds. He can consider large-cap mutual funds or multi-cap funds and start a monthly SIP in these funds.

Now, as and when the income increases, he should also increase your investment amount. Rajeev should also review his health and term cover at regular intervals to ensure the cover is sufficient.

Corporate Fixed Deposit

CFD Better Then Bank FD (Fixed Deposit)

FDs are normally a fixed deposit and a saving instrument, which gives a higher rate of interest than a regular savings account. 

It is a term deposit in which we invest in a lump sum amount and we get interest on it till maturity. 

FD’s are normally offered by the bank. But NBFC’s (Non-Banking Financial Companies) also offer the FD’s and it is known as Corporate Fixed Deposits. They are the same as bank FDs.

Corporate Fixed Deposit (CFD) is a term deposit that is held over a fixed period at fixed rates of interest. The maturities of various corporate fixed deposits can range from a few months to a few years.

Their functioning is somewhat similar to Bank FDs but they are offered a higher rate of interest. The risk involved with corporate FDs is significantly higher. If the company hits a recession or goes bankrupt then the returns cannot be provided at the maturity of corporate FDs.

The medium of the deposit is a certificate of deposit. The corporate FDs are not insured, that means, in case of default you will not get Rs 5 lakh as in the case of bank fixed deposits. It gives high returns as compared to Bank FD’s as they involve high risks.

Key benefits of Corporate FD’s :

Higher returns – Enjoy greater returns from Corporate FDs as compared to the bank FDs.

Flexibility – Choose Corporate FDs as per your preference from a variety of tenures such as monthly, quarterly, half-yearly, or yearly.

Liquidity – Enjoy better liquidity with Corporate FDs with a lower lock-in period than Bank FDs

Premature Withdrawals – Opting for premature withdrawal in FD means depositors can withdraw their amount and close the account before the term ends.

Safety – Company deposits are carefully inspected by credit rating agencies. These agencies check whether such FDs are safe and stable.

Tips for choosing a Corporate FD:

Credit Rating: Opt for higher-rated corporate FDs based on its credit rating which indicates the underlying risk of the company.

Company Background: Assess a company’s business viability by referring to its Financial Statements, Management Discussion, and Analysis (MD & A).

Repayment History: Companies’ repayment history helps to determine the company’s credit score, credibility, and stability.

Risk profile: Make sure that the company you pick is financially healthy and helps you rule out any default risk during the fixed deposit period.

Terms of FD: A cumulative scheme could be better than a regular income option as the interest earned gets invested in other avenues. At the end of the day, you’ll have a lump-sum amount in your hands. But not if you’re looking for a regular income from the FD.

Here are the top NBFC’s recommended by our expert.
1. HDFC Ltd (Housing Development Finance Corporation Ltd)
2. PNB Housing (Punjab National Bank Housing Finance)
3. Mahindra Finance (Mahindra & Mahindra Financial Services Ltd)