Tuesday, September 30, 2008

SBI introduce 1000-days deposit scheme

State Bank of India (SBI), from October 1 will be increasing its deposit rates in certain maturities.

According to SBI press release the bank has introduced a 1000-days fixed deposits scheme in which bank is offering 10.5 per cent interest to depositors. It said under this scheme the senior citizens will get a higher 11 per cent interest in the new deposit-scheme.

The bank sources added, in addition, an additional 0.25 per cent rate above the card rate is being offered on a single term deposit of Rs 15 lakh and above, the tenure will be of 181 days to less than 2 years, the bank said.

The bank said likewise, 0.1 per cent above the card rate will be given on a single term deposit of Rs 15 lakh and above for other periods of less than 181 days and the periods of 2 years and above.

Monday, September 22, 2008

FDs, FMPs can be safe investments in troubled times

Since January 08 the share market is very unstable therefore the financial expert’s advice to invest in bank’s fixed deposits (FDs) and fixed maturity plans of mutual funds (FMPs). FDs and FMPs provide cushion and relatively risk free returns. According to financial planners the fixed deposits can have dominant importance to senior citizens or those with limited risk factor.

In the case of debt possibilities such as fixed deposits, at present most public sector and private sector banks are offering 10 per cent for a 1-year fixed deposit, and 10.5 per cent in the case of senior citizens. And for a fixed deposit of say Rs 50, 000, the entire interest of Rs 5, 000 can be taken without any TDS, in case the depositor has a gross income of around Rs 1.5 lakh per annum. The FD holder would be required to submit a tax declaration form 15 to the bank, to get his interest without TDS.

But, investors coming under the higher tax brackets like 20 or 30 per cent, possibly will see their returns come down to as low as 7 per cent. Certainly, with inflation currently close to 12.5 per cent levels, FD option might not be of help for an investor to keep up with the rising cost of inflation.

“The key aspect here is protection of an investor's savings, but the returns are modest,” said Amar Pandit, director, My Financial Advisor.

Then in debt investment avenue fixed maturity plans launched by mutual funds is in trends. A majority of these FMPs do investments solely in debt instruments, in accordance to the tenure of the plan. According to financial planners FMPs are relevant especially for the investors in the high tax bracket because funds give returns to their investors of FMPs in the form of dividends, which are subject to dividend distribution tax of 14 per cent. Thus, for investors in the higher tax bracket of 30 per cent, their net return via FMP is close to 8.6 per cent levels, which is much better than a plain vanilla fixed deposit.

But, for the investors with a longer time prospects and can face risk factors, financial planners indicate that it can be the right time to assess opportunities in the stock market or gold.

Since January 08 there has been 37 per cent dip in Sensex from its peak therefore this is the right time to avail such investment opportunities. As for the Sensex at 13,120 levels, it is currently trading at 16.5 times trailing P/E, well below the peak of 28.5 times in early January.

“Equities are the best option to grow one savings in the long term," said financial planner Kartik Jhaveri of Transcend Consulting.

To avail opportunities in this space, investors can consider investing directly in the stock market or could leverage the professional investment services offered via mutual fund schemes.

Jhaveri says that if one is investing directly, one can consider large cap stocks in sectors which offer growth opportunities over the next few years like telecom, healthcare or engineering sector. Investors can also take up SIP schemes offered by mutual funds, which start at just Rs 1000 per month, typically for a three year period.

Then investing in gold is another popular area in today's uncertain times. But returns from gold wholly depend upon the price at which one buys. For instance in Thursday's trade, domestic gold prices posted their biggest intra-day rise in 27 years to Rs 12,915 levels per 10 gram.

However, despite the instability in gold prices, it is considered a sound investment avenue during these uncertain times. For instance, gold ETFs have given a return of nearly 26 per cent since the beginning of calendar year 2008, this is the highest for any investment category, whether debt or equity linked funds.

Sunday, September 7, 2008

Banks offer high interest rates on 400-day fixed deposits

The inflation has gone high but the interest rates on fixed deposits have also increased. This is the right time and would be the right decision to make investments in the fixed deposits as the deposit rates are currently ranging from 9.5% to 10.50%. The fixed deposits with the tenure of 400 days will get the maximum benefits.

DNA carried out the survey and found out that five of 20 banks - ABN AMRO Bank, Bank of Baroda, Bank of India, Development Credit Bank and Indus Ind Bank — are offering higher interest rates on 400-day fixed deposits in comparison to other maturities.

The ABN AMRO Bank is offering an interest rate of 10.25%; while the other four banks are giving an interest of 10% on deposits fixed for 400 days. But if we compare it with other maturities having almost a similar tenure, offer on 400-day deposits tand out to be lower.

For instance, ABN Amro Bank is giving an interest of 9.75% on a fixed deposit of 399 days and 9.5% on a fixed deposit of 401 days. Thus this offer nearly matches it.

ICICI Bank is giving an interest of 10% on its 390-day fixed deposits while the Union Bank of India is offering 10% on deposits maturing in 444 days. While HDFC bank the second largest private sector bank in the country, is giving 10% interest on a maturity of 1 year 15 days to 1 year 16 days. Kotak Mahindra Bank is offering 10.12% on the maturity of 390 days.

There are several other banks that are not favoring any specific maturities and are offering higher interest rates on all fixed deposits. Country’s largest bank, State Bank of India, is offering an interest rate of 10% on a maturity of about one year and less than two years.