Most of the corporates prefer investing in fixed maturity plans (FMP), offered by mutual fund houses as these provide maturity at shorter terms while offering competitive profits. Therefore banks have started re-looking at fixed deposit schemes offered by them.
Recently Religare Mutual Fund, Fidelty Mutual Fund, HDFC Mutual Fund and Axis Mutual Fund have launched fixed maturity plans with maturity periods ranging from 90 days to 370 days.
According to Asit Pal, executive director of the Corporation Bank, “Definitely we will have a re-look at the performance of fixed deposits against fixed maturity plans. But we also need to get a clear picture about the market share of FMPs.”
He added, “Fixed deposit schemes have performed better last year. Although it was little dampened on the retail side, performance of high value clients investing in FDs was quite good.”
However, FMPs are favorites with corporate investors due to shorter maturity periods. But a section of corporate investors do prefer fixed deposits for better returns. Nilanjan Dey, Wishlist Capital Advisors said, “Corporate investors look for convenience in investments. So it has a chance to become popular again this time,”
Debjiban Basu, general manager (treasury, international banking & accounts) of United Bank of India, say corporates main concern is of liquidity. “If they are looking for easy liquidity and some interest then fixed deposits are better instruments for them. There is an upward trend of the yield in the market. Moreover, corporates are also looking at minimizing their MTM losses.”
Salil Datar, head (branch banking) of Dhanlaxmi Bank, points out corporates mostly prefer short-term FMPs with a maturity of about 90 days. He said, “Suppose an FMP offers a yield of 6-6.3% on a 90 days maturity period, its post-tax return will be around 4.8-4.9%. For a fixed deposit of similar tenure with an estimated yield of 5-5.5%, post tax return is around 3.6%. So for shorter term FMPs are a favorite with corporate investors.”
He added, “But I do not think corporates will be much interested in FMPs with maturity period as long as 370 days. Fixed deposits have an edge over FMPs there.”
D Sarkar, executive director of Allahabad Bank, stated, “We might consider increasing yield on the fixed deposits by 25-50 basis points. But that is not with an intention to compete with FMPs.”
Monday, June 28, 2010
Thursday, June 24, 2010
You get option in tax-saving FDs
The government has revised discussion paper (RDP) on the direct taxes code (DTC) after it got pressure from all section of people. The discussion paper contained some provisions especially related to the proposed exempt-exempt-taxed (EET) method of taxation that will provide relief to taxpayers.
Here we will discuss in brief about EET. EET is a tax system in which an investment in a tax-saving plan and interest earned on it is deductible from income. The maturity amount is also taxable. While in the current EEE system no tax is charged on investment, interest and the maturity amount. But in the new provision the Public Provident Fund (PPF) and company provident fund (PF) balances has been brought under EET method of taxation. Due to which there is major apprehension and anxiety among taxpayers. Though DTC had provided for a grandfathering clause, it was deemed woefully inadequate.
According to the original provisions of the DTC, on the withdrawal of any amount of accumulated balance in PPF/PF as on March 31, 2011 people don’t have to pay tax. But, in new contributions as well as on accumulation on or after the commencement of the DTC (April 1, 2011) will be subjected to the EET method of taxation. And everyone knows that as per rules no one can withdraw entire PPF balance at one go from its account except on maturity. Thus for most investors, only a part will be tax-free, while on all interest and accumulations post March 31, 2011 tax have to paid upon withdrawal or maturity.
Now in RDP it has been stated that PPF and PF will remain tax-free even under the new DTC. Moreover, any investments made before the date of commencement of the DTC, in instruments which comes under EEE method of taxation as per the current law will continue for the full duration of the financial instrument. This is the main point of worry for the investors.
Here we will discuss in brief about EET. EET is a tax system in which an investment in a tax-saving plan and interest earned on it is deductible from income. The maturity amount is also taxable. While in the current EEE system no tax is charged on investment, interest and the maturity amount. But in the new provision the Public Provident Fund (PPF) and company provident fund (PF) balances has been brought under EET method of taxation. Due to which there is major apprehension and anxiety among taxpayers. Though DTC had provided for a grandfathering clause, it was deemed woefully inadequate.
According to the original provisions of the DTC, on the withdrawal of any amount of accumulated balance in PPF/PF as on March 31, 2011 people don’t have to pay tax. But, in new contributions as well as on accumulation on or after the commencement of the DTC (April 1, 2011) will be subjected to the EET method of taxation. And everyone knows that as per rules no one can withdraw entire PPF balance at one go from its account except on maturity. Thus for most investors, only a part will be tax-free, while on all interest and accumulations post March 31, 2011 tax have to paid upon withdrawal or maturity.
Now in RDP it has been stated that PPF and PF will remain tax-free even under the new DTC. Moreover, any investments made before the date of commencement of the DTC, in instruments which comes under EEE method of taxation as per the current law will continue for the full duration of the financial instrument. This is the main point of worry for the investors.
Tuesday, June 8, 2010
Banks might hike fixed deposit rates by Sept
According to the Reserve Bank of India's (RBI) latest report the total deposits of banks have dipped by Rs. 4,997.08 crore to Rs 45,26,220.20 crore as on May 21, 2010 as compared to Rs 45,31,217.28 crore registered on May 7, 2010. The RBI estimation takes into account the resources needed to meet credit offtake by the private sector and government borrowings along with growth and inflation outlook.
However experts believe the decline may end soon. Indraneel Sen Gupta, economist in BoA Merrill Lynch, says, “We expect a bottoming out by September (and the figure could touch) to 18.2% by March 2011.”
According to Mridul Saggar, chief economist, Kotak Securities, at present bank deposits growth is below comfort levels. Referring to the RBI projection made during the annual monetary policy review, Saggar said, “If this continues, the full-year target of 18% won’t be reached.”
Moreover the government borrowings are high this year, credit growth is also expected to be higher than last year at 20%.
“Interest rates on deposits are too low now and in some time banks would have to consider their sources of funds and take a decision on deposit rates so that they are in a position to meet credit growth targets,” said Saggar.
Thus Sen Gupta believes banks will be hiking deposit rates by September.
OP Bhatt, chairman and managing director, State Bank of India,India’s largest commercial bank, said that banks will hike their deposit rates because banks will need money to meet credit demand. However Union Bank of India has already raised its interest rates on bulk deposits for 1 year to 6.5% from 6% earlier.
S Govindan, general manager, Union Bank of India said, “We revised the rates on bulk deposits for 1 year in line with the certificate of deposit rates.”
In mid-April the bank hiked its retail deposit rates to 7.5% for 5 years, 7.25% for 3 years and 6.5% for 1 year.
“We are continuing with these rates for now and will take a call when markets start showing signs ofliquidity crunch,” said Govindan.
However experts believe the decline may end soon. Indraneel Sen Gupta, economist in BoA Merrill Lynch, says, “We expect a bottoming out by September (and the figure could touch) to 18.2% by March 2011.”
According to Mridul Saggar, chief economist, Kotak Securities, at present bank deposits growth is below comfort levels. Referring to the RBI projection made during the annual monetary policy review, Saggar said, “If this continues, the full-year target of 18% won’t be reached.”
Moreover the government borrowings are high this year, credit growth is also expected to be higher than last year at 20%.
“Interest rates on deposits are too low now and in some time banks would have to consider their sources of funds and take a decision on deposit rates so that they are in a position to meet credit growth targets,” said Saggar.
Thus Sen Gupta believes banks will be hiking deposit rates by September.
OP Bhatt, chairman and managing director, State Bank of India,India’s largest commercial bank, said that banks will hike their deposit rates because banks will need money to meet credit demand. However Union Bank of India has already raised its interest rates on bulk deposits for 1 year to 6.5% from 6% earlier.
S Govindan, general manager, Union Bank of India said, “We revised the rates on bulk deposits for 1 year in line with the certificate of deposit rates.”
In mid-April the bank hiked its retail deposit rates to 7.5% for 5 years, 7.25% for 3 years and 6.5% for 1 year.
“We are continuing with these rates for now and will take a call when markets start showing signs ofliquidity crunch,” said Govindan.
Monday, June 7, 2010
ING Vysya Bank raised its interest rates by 0.50 to 1.25 per cent
ING Vysya Bank has raised its interest rates by 0.50 to 1.25 per cent on select tenures. According to bank release the revised rates will come to effect from June 4, 2010.
The rates have been revised by 5.25 per cent from 4.75 per cent for deposits with a maturity slab of 92-182 days. It added, the revised rates for the 184-364 days maturity slab is 184-364 as against the earlier 5 per cent.
While on 366 days to less than two years, the rate has been increased to 6.50 per cent from 5.25 per cent, and for 730 days to 10 years, the new rate is 6.75 per cent against the earlier 5.75 per cent.
The release said the senior citizen will provided an additional 0.25 per cent.
The rates have been revised by 5.25 per cent from 4.75 per cent for deposits with a maturity slab of 92-182 days. It added, the revised rates for the 184-364 days maturity slab is 184-364 as against the earlier 5 per cent.
While on 366 days to less than two years, the rate has been increased to 6.50 per cent from 5.25 per cent, and for 730 days to 10 years, the new rate is 6.75 per cent against the earlier 5.75 per cent.
The release said the senior citizen will provided an additional 0.25 per cent.
Wednesday, June 2, 2010
Axis Bank reduced interest rates on long tenure deposits
Axis Bank, country’s third largest private sector lender has announced cut in its deposit rates by 25-50 basis points (bps) across select longer-dated maturities. Bank said at present the liquidity situation is not as harsh as it had previously anticipated therefore it decided to reduce the deposit rates.
The rate has been reduced of two years to 30 months by 25 bps to 7.0 per cent and on 30 months to three years maturity the rates has been reduced by 50 bps to 7.0 per cent. The revised rates have come into effect from May 22.
“We initially raised rates, thinking the liquidity situation will be harsher than it is. But interest rates have not risen to that extent and, so, we decided to reassess the situation and cut rates on the two long-term maturities,” said R V S Sridhar, senior vice-president of treasury, Axis Bank.
In the past two months it is the second bank to reduce its deposit rates, earlier in mid-April Bank of India reduced its interest rates for deposits above Rs 1 crore.
According to some of the bankers, in spite of temporary liquidity squeeze on account of advance tax and 3G spectrum payments, there is less possibility of increase in medium and long term deposit rates over the next two-three months.
B A Prabhakar, executive director at public sector lender Bank of India said, “We also lowered rates about three-four weeks ago. Deposit rates are unlikely to go up for the next two months at least, because the liquidity situation is still relatively easy and we are not seeing any further tightening by RBI on the policy front.”
He added, although the banks have started raising lending rates for short tenures.
According to Ashish Parthasarthy, treasurer at HDFC Bank, “As of now, deposit and lending rates are likely to remain stable. There could be a slight increase in ultra short-term lending and deposit rates, but medium- and long-term rates are unlikely to increase for the next two months, at least”.
The rate has been reduced of two years to 30 months by 25 bps to 7.0 per cent and on 30 months to three years maturity the rates has been reduced by 50 bps to 7.0 per cent. The revised rates have come into effect from May 22.
“We initially raised rates, thinking the liquidity situation will be harsher than it is. But interest rates have not risen to that extent and, so, we decided to reassess the situation and cut rates on the two long-term maturities,” said R V S Sridhar, senior vice-president of treasury, Axis Bank.
In the past two months it is the second bank to reduce its deposit rates, earlier in mid-April Bank of India reduced its interest rates for deposits above Rs 1 crore.
According to some of the bankers, in spite of temporary liquidity squeeze on account of advance tax and 3G spectrum payments, there is less possibility of increase in medium and long term deposit rates over the next two-three months.
B A Prabhakar, executive director at public sector lender Bank of India said, “We also lowered rates about three-four weeks ago. Deposit rates are unlikely to go up for the next two months at least, because the liquidity situation is still relatively easy and we are not seeing any further tightening by RBI on the policy front.”
He added, although the banks have started raising lending rates for short tenures.
According to Ashish Parthasarthy, treasurer at HDFC Bank, “As of now, deposit and lending rates are likely to remain stable. There could be a slight increase in ultra short-term lending and deposit rates, but medium- and long-term rates are unlikely to increase for the next two months, at least”.
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