42595What problems are there with recycled mobile numbers?

Last one year has been a challenge for fixed income as interest rates has been on the lower side throughout the time. It all started with the challenge Covid-19 pandemic got across the world in February and March 2020. In India, when things were just about to improve in the beginning of 2021, we were struck by the second wave which resulted in strict lock down across states for nearly three months so far.

RBI’s stand was clear right from the beginning that it will continue to tolerate low interest rates and maintain its accommodative stance. Their objective is clear – revival of the economy to ensure growth returns when things get normal.

With Covid cases receding and increase in vaccination, the recovery can catch some pace. However, interest rates are not expected to rise suddenly. It may follow a slow and gradual process over a few quarters. Hence, returns from fixed income investments are expected to remain low for some more time.

Time for rethinking Fixed Deposits

Many fixed income investors are rethinking their investments as they are constantly staring at their portfolio returns far lower than their expectations.

What should the next step of these investors who are risk-averse be? Should they continue to hold on to their investments or wait for some more time before investing further? Or should they take the bold step of locking the investments at these low rates?

FD Alternatives

If we look at the fixed income investment opportunities that are available for investors, the pool appears reasonable. However, there are different parameters that one must keep in mind before investing in it.

Investment options like PPF, EPF / VPF, Pradhan Mantri Vaya Vandana Yojana (PMYY), Senior Citizen Savings Schemes (SCSS), National Savings Certificate (NSC), RBI Bonds, etc. still offer fair rates of return compared to other fixed income options like bank accounts, fixed deposits, money markets and debt funds. But they do have a lock-in.

Depending on the needs of the investor, for those who would like to invest in fixed income for mid to long-term can look at PPF as it continues to be one of the best options for all age groups.

If you have an existing PPF account that is about to mature in few years or recently extended, it is better from a liquidity perspective as well.  Even the interest rate in PPF is not locked as per the time of investment. Those who would like to invest for long-term should ideally wait (if possible) or, if in a rush, consider government-backed small savings schemes where the interest is based on repo rate and not fixed for the entire tenure.

Debt Funds Better Than FDs?

Looking at the current scenario, it is advisable to remain invested in avenues with lower maturity like short-term fixed deposits. liquid funds, ultra-short duration debt funds and short duration debt funds, instead of locking in long term investment at current interest rates. The overall situation has been challenging and interest rates may continue to remain low for some more time. It may be better to turn to long term fixed income investment when interest rates start increasing, till that time the returns on fixed income may continue to remain low for coming few quarters.