NEW DELHI: Fixed deposits (FD), also known as term deposits, continue to remain a popular investment instrument among investors because of their guaranteed returns. And, with banks and non-banking financial companies (NBFC) recently revising interest rates, FDs make more sense for investors who are willing to park their money in a risk-free instrument.
Private lender Axis Bank hiked fixed deposit interest rates on December 1. India’s largest lender State Bank of India revised its FD interest rates on November 28 and hiked the rate from 5 to 10 basis points. Other major banks such as HDFC Bank and ICICI Bank have also revised their interest rates. HDFC had hiked rates by up to 50 basis points and ICICI Bank by up to 25 basis points.
The hike is said to have come on the back of Reserve Bank’s decision to raise the repo rate by 25 basis points each in two of its last three monetary policy reviews. Not only banks, NBFCs too acted on the RBI’s new repo rate and increased interest rates offered on FDs.
Should you invest in FDs?
With better interest rates, investments in FDs will fetch better returns and secure your hard-earned money. Experts say that the risk-free and guaranteed-returns characteristics of FDs will continue to appeal investors, especially senior citizens who don’t want to enter the turbulent equity market. It is important to note that interest rates are kept up to 0.50 per cent higher for senior citizens.
FDs are recommended not only for those who want to play it safe, but also for risk-bearing investors. “Depending on one’s risk appetite, one should have 10-50 per cent exposure of their funds towards FDs and similar risk-free instruments. It helps to balance out investment when the equity market is relatively volatile,” said a financial planner.
NBFCs and smaller banks?
While interest rates offered by NBFCs, HFCs and smaller banks are more lucrative than large-cap banks, investors would be wary of them when a large NBFC like IL&FS collapses.
However, in general, credit rating awarded to banks must be checked as they indicate their safety, so also other instruments. What is also advised is that one should study the news around institutions chosen for investment, seek existing customers’ feedback and look at the history of the promoters. If they feel the working of the institution is transparent and it has strong financials, it is fine to invest.
NBFCs such as Bajaj Finance, Mahindra Finance and HDFC Ltd command confidence even when the rest of the industry goes through turbulence.
