investment habits during high & low interest rates
DESCRIPTION
TRANSCRIPT
Why is the knowledge of interest rates importantfor a retail banker?How does it impact the sales pitch?What are investors options during high & low interest rates
Faculty name:Vishwanathan R
Batch codeHYD01AA0213
Date30-10-2013
Student Name Enrolment ID
Harivardhan E130031000112
Rajasekhar E130031000127
Kowsar E130031000129
Amit E130031000147
S. No Description
1 Interest Rates
2 Different types of Interest Rates
3 Factors affecting Interest Rate
4 Correlation between Interest Rates and Investment
5 Best investment option on current Interest Rates
6 Essential things to know for a retail banker on Interest Rates
7 Bottom Line
8 Bibliography
CONTENTS
Interest rate
This is the amount calculated as a specified percentage of the amount lent to the Borrower. This amount is paid by the borrower to the lender.
Interest rate Lender Borrower Period Current interest rate
Previous Interest rate
Bank rate RBI Commercial banks
Long period 8.75% 9.00%
Repo rate RBI Commercial banks
Short period 7.75% 7.50%
Reverse repo rate
Commercial banks
RBI Short period 6.75% 6.50%
Base rate Commercial banks
Customers Bank regulates
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Call rate Bank Bank Bank regulates
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Deposit rate Customer Bank Bank regulates
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Factors affecting interest rates
Demand/Supply of money
Govt borrowings &Fiscal deficit/OMO
RBI Inflation
When economy is growing
International forces
Interest 1 investment
Int rate investment
Correlation b/w interest rates and Investment
Investment option when interest rates
HIGH
• FMP
• NCD
• Corporate Bonds
• Bank deposits
LOW
• CD’s
• CD’s
• Stock
• Home loan
• Fixed maturity plans: A close ended fund that invest in debt and money market instrument. Focus of a fixed maturity plan is to provide a stream of income through interest payments, while exposing the investor to a lower level of risk.
• Eg: Short-term debt instruments
Best investment option on current interest rates
• These plans invest in a mix of short-term options, such as money market instruments, certificates of deposit, commercial papers etc.
• These are currently offering a yield of 9.5-10%.
• Diminishes the uncertainity of higher yields, which most of debt market products do not offer.
Why invest in FMPs now
Tax efficiency Fixed tenure Low sensitivity to interest rates. Initial investment- Rs.5000/-. Capital protection Lower cost
BENEFITS
• Protection through Indexation FMP's more beneficial than FD's, as the interest is not clubbed with income, & is taxed only after indexation.
• Leading FMP’s Reliance Mutual Fund, ICICI Prudential Mutual Fund, Birla Mutual Fund, TATA Mutual Fund, DSP BlackRock Mutual Fund and others.
• The investment is earmarked ONLY in BANK CDs/FDs.
• Investments & returns are guranteed.
• TDs after Indexation.
• Nri investor’s yeild rose from 8.5 to 9%, with total repatriation.
• Similar to the FD of a bank’s , in terms of a pre-determined return to the investors/ depositors.
FEATURES of FMP's
Essential things to know for a retail banker on Interest Rates
• Flourishing economy indicates rising Interest rates, making it essential for the Banker to advise their customers on various Investment options.
• Rise in OMO confirms that Govt securities & debt market are the safest bets.
• Key Interest rate changes confirms the RBI’s intentions to combat Inflation.
Home Loan
• It is a good investment option when the interest rates are low.
• Get loan at cheaper rate of interest
• Tenure: minimum for 15 years
Investment when interest rate is low
Bottom Line
• It is important to know the interest rates to retail bankers to guide their customer in a right way.
• Leads to increase the sales pitch
• Leads to retain a customer for a longer period.
Bibliography
• www.investopedia.com
• www.wikipedia.com
• www.rbi.org
• www.economictimes.com
• www.business-standard.com
26/10/13