Safe investments when interest rates fall

K. ARAVIND

While the cut in repo rate to 4 per cent is good for those who want to borrow and who have already borrowed, it is not good tidings for those who have invested in bank fixed deposits for a fixed income.

Those who invest in banks’ fixed deposits receive relatively low interests. For example, SBI, the country’s largest public sector bank, offers only 5.1 per cent interest on fixed deposits of one to three years. Senior citizens get 6 per cent interest. In February last year, the interest rate was 6.8 per cent for ordinary people and 7.3 per cent for senior citizens. Since then, interest rates on fixed deposits have been slashed.

According to an SBI report, Rs.14 crore has been deposited in 4.1 crore senior citizen accounts in the bank. When these fixed deposits are renewed on maturity, only the current minimum interest rate is available. In this case, those who are aiming for a fixed return on investment can look for other ways.

Companies offer a higher interest rate for fixed deposits than bank fixed deposits. Due to the high ratings currently available, some companies that offer adequate securities offer fixed deposits of up to eight per cent for three years. Companies such as Bajaj Finance, Mahindra Finance and PNB Housing Finance offer interest rates ranging from 8.3 per cent to 8.45 per cent for three-year fixed deposits. This means that these companies are paying more than three per cent more interest than SBI.

At the same time, investors should not choose fixed deposits based solely on high interest rates. Such investment plans should be selected only after examining the credibility, track record and management nature of the companies. Their rating is the most important way to ensure the security of investments. Credit rating agencies’ rating is mandatory for investment plans. AAA is the highest rating.

The investment rating of companies such as Bajaj Finance, Mahindra Finance and PNB Housing Finance is AAA. Therefore, we can be assured that their safety is at a high level. LIC Housing Finance and ICICI Home Finance, which have an AAA rating, offer 7.95-8 per cent interest on a three-year investment.