Is FD power on the wane? Not really, say experts
As floating rate fixed deposits (FDs) take over, is the sturdy old savings instrument losing its charm? Experts say not. While debt-based mutual funds may offer higher returns, FD may still score higher on safety, as returns do not fluctuate.Updated: Aug 19, 2010 20:41 IST
As floating rate fixed deposits (FDs) take over, is the sturdy old savings instrument losing its charm? Experts say not. While debt-based mutual funds may offer higher returns, FD may still score higher on safety, as returns do not fluctuate.
After SBI kicked off the trend, other banks are also working on floater deposits.
However, experts advice caution since a pre-mature withdrawal in fixed rate FD may attract a penalty and a variable rate FD may be subject to interest rate fluctuations.
“I think it will work only in a rising interest rate scenario and that too for the medium-term of 2-3 years and in a falling interest rate scenario it is better to lock in at the fixed rate,” said Amar Pandit, a Mumbai based financial planner.
Financial experts, however, feel that even if the interest rate goes down, the capital is safe.
“FD your capital is secure and the only matter is whether you earn 6 per cent or 8 per cent. However, in case of debt funds, you may see some loss in your portfolio for the short-term, though they offer more liquidity,” said Surya Bhatia, a Delhi- based financial planner.
Investors may also look at other options of fixed returns.
While Public Provident Funds offers a tax-free return of 8.5 per cent, the individual investment is capped at R70,000. The post office monthly income scheme offers 8 per cent but the investment is limited at R4.5 lakh.
First Published: Aug 19, 2010 20:40 IST