How rising bank FD rates a challenge for stock market, mutual fund investors ?
Portfolio Management: Amid the Reserve Bank of India's (RBI) hawkish interest rate hike, various Indian banks have announced hikes in fixed deposit (FD) interest rates over the past few months. State Bank of India (SBI) recently announced an FD rate hike of up to 80 basis points, while Canara Bank announced an FD rate hike of up to 135 basis points. Apart from them, HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank are some of the lenders who are interested in term deposits in recent times. Today, two public sector banks, Canara Bank and Union Bank of India, offer a fixed interest rate of 7% on deposits. So, traditional bank FD rates should attract investors who have turned to equities during the post-Covid stock market rebound. However, the increase in bank deposits will not make mutual funds and equity investments more attractive. But, from a portfolio perspective, this will present a challenge for equity investors, as bond funds are expected to recover in a period of high interest rates. bank.
Experts say that amid RBI's interest rate hawkishness, mutual funds will be seen as an attractive investment option as RBI is again expected to announce interest rate hikes. interested in its next meeting of the Monetary Policy Committee (MPC). They advise investors to consider high-yield plans, long-term flexible plans and floating rate bonds (FRBs), as these assets are expected to outperform other debt instruments. 'period of high interest.
Debt mutual funds in focus
Advising investors to look at mutual funds, Chintan Haria, head of product and strategy at ICICI Prudential AMC, said: “Investors should consider mutual funds as a liability, like a group interesting treasure. We expect the repo rate to increase in the upcoming meetings as inflation continues on top of RBI's comfort level, challenging global economy, high consumer prices and other factors. The only type of debt that can be higher is floating rate bonds (FRBs). Investors should be aware that debt also has an important role to play in a portfolio and should not be neglected."
On individual investors looking for the first investment option, Chintan Haria of ICICI Prudential AMC said, “An investor considering a mutual fund investment can opt for the right value if he are many asset classes". Denying the possibility of an increase in bank interest rates in India, Amar Ranu, Head of Investment Products and Advisory at Anand Rathi, said: "We have seen the repo rate increase to 5.9% on Sept. 22 vs. 4 % on Apr. 22, 150 basis points which also caused banks to raise their deposit rates, but so far they have not raised it strongly. Given that India has managed inflation better than its global peers, we are almost at the top of interest rates, barring another 35-50 basis points expected in the future is near."
Amar Ranu further added that banks will not raise deposit rates aggressively unless they are overwhelmed by high credit growth. So far, they have been able to manage it with a moderate increase in deposit rates. If the deposit rate increases, say 8-9% and above, investors may try to shift some money from stocks to fixed income to ensure that it will - return.
“We advise investors to maintain asset allocation and not be harmed by high equity or leverage. It is advisable to stick to the risk profile of the investors based on equity and debt ratio and stay invested in these two asset classes based on investment policy and objectives,” Amar Ranu of Anand Rathi said.
Bank FD vs mutual funds
For bank customers who have switched funds due to the reduction in FD yields, Vinit Khandare, CEO and founder of MyFundBazaar, said, “It is not subject to inflation risk and FD yields are non-taxable, bank FDs can be suitable for low- However, risk investors, the returns will be considered only in the after-tax system. Compared to bank trust funds, mutual funds are flexible, liquid and tax efficient. Unlike FDs, mutual funds benefit from high inflation whereas, in the case of FDs, the meaning of loss is clear. FDs offer a fixed amount of interest, depending on the investment period chosen, which can range from 7 days to 10 years.
To START a SIP CLICK HERE or WhatsApp us on +91 9967724055 for FREE Advise.
Disclaimer: All Mutual Funds are subject to market risk. Please read all scheme-related documents carefully.
0 Comments