Monday, September 27, 2010
Allahabad Bank revises interest rate for 500 days tenure
Allahabad Bank, a public sector bank has revised its domestic term deposit interest rates. The rates have been revised of below Rs 1crore and will be effective from 27 September, 2010. For 500 days tenure the interest rate will be 7.50 per cent per annum. The interest rates of the remaining tenures have not been changed. The revised rate will be applicable for fresh deposits and renewal of deposits.
Thursday, September 23, 2010
Kotak Mahindra Bank raises deposit rates by 0.25%
Last week again, RBI has raised its short-term lending rate (the repo rate) by 25 basis points and borrowing rate (reverse repo) by 50 basis points, as a result banks will again raise fixed deposit rates also lending rates. But banks plan to revise rates in October.
Kotak Mahindra Bank, a private sector banks has taken lead in raising its fixed deposit rates. On Tuesday bank increased the term deposit rates by 0.25%. On the other hand, on Monday Yes Bank raised its benchmark prime lending rate (BPLR) by 50 basis points to 17.5%.
Kotak Bank has revised its rates for all tenures with maturities of 1 year and above with immediate effect.
KVS Manian, group head Kotak Mahindra Bank told FE, “Our deposit rate hike only reflects the upwards interest rate bias in the market. However, we have not yet decided on hiking the lending rates. We may revise our BPLR and base rate both in the early October this year.”
Bank reported credit and deposit growth at more than 30% year-on-year basis. After revised rates for one year term deposit the interest rate is 7.25% while for five years and above, the rate of interest is 7.75%.
Kotak Mahindra Bank, a private sector banks has taken lead in raising its fixed deposit rates. On Tuesday bank increased the term deposit rates by 0.25%. On the other hand, on Monday Yes Bank raised its benchmark prime lending rate (BPLR) by 50 basis points to 17.5%.
Kotak Bank has revised its rates for all tenures with maturities of 1 year and above with immediate effect.
KVS Manian, group head Kotak Mahindra Bank told FE, “Our deposit rate hike only reflects the upwards interest rate bias in the market. However, we have not yet decided on hiking the lending rates. We may revise our BPLR and base rate both in the early October this year.”
Bank reported credit and deposit growth at more than 30% year-on-year basis. After revised rates for one year term deposit the interest rate is 7.25% while for five years and above, the rate of interest is 7.75%.
Monday, September 20, 2010
MF houses launch new FMPs, offer high interest rate than bank FD
With rising bank deposit rates, mutual fund houses are also making a beeline to attract investors by offering new fixed maturity plan (FMP). In the past 15 days, companies such as Tata Mutual Fund, Birla Sun Life Mutual Fund, Taurus Mutual Fund and IDFC Mutual Fund have been opened for subscription of eight new FMPs.
Almost all mutual fund companies have launched fixed-term plans of varying maturities ranging between 91 days to 1-year tenure.
Fund houses provide options of different maturity periods to the investors so that they can park their money depending on their requirement for capital.
Fixed term plans invest in debt securities in which the returns are locked in the beginning of the plan so the interest rate risk is reduced by a good measure.
According to fund managers present levels are good for investment in fixed-term funds.
FMPs have two features one is FMPs offer slightly higher returns than bank fixed deposits (FDs) and are not unstable as equities.
Naval Bir Kumar, managing director of IDFC Asset Management Company said, “This is a good time to invest in fixed maturity plans as the interest rates are high. If rates keep moving up, we will launch new plans.”
Short-term yield on debt instruments such as commercial paper is between 7 and 8 per cent.
If we calculate the gross yield, after deducting asset management expenses, the gross yield can be anywhere between 6.5 and 7.25%. Fund managers cannot give indicative returns on fixed-term portfolios.
As per latest hike fixed maturity plans for 90 days can offer returns upwards of 6 per cent, while fixed deposit for 90 days tenure are offering 4 per cent interest.
Returns gained in FMPs depend on portfolio construction and in which instrument(s) money has been invested.
Alok Singh, head (fixed income) of Fortis Mutual Fund said, “Fixed-term plans become attractive when short-term rates move up. FMPs though come with a rider of no liquidation. Unlike open-ended funds where investors can go for redemption, money in FMPs is locked up for the tenure of fund. Investors who have three months to one-year investment horizon can earn high yields at maturity in a FMP.”
Almost all mutual fund companies have launched fixed-term plans of varying maturities ranging between 91 days to 1-year tenure.
Fund houses provide options of different maturity periods to the investors so that they can park their money depending on their requirement for capital.
Fixed term plans invest in debt securities in which the returns are locked in the beginning of the plan so the interest rate risk is reduced by a good measure.
According to fund managers present levels are good for investment in fixed-term funds.
FMPs have two features one is FMPs offer slightly higher returns than bank fixed deposits (FDs) and are not unstable as equities.
Naval Bir Kumar, managing director of IDFC Asset Management Company said, “This is a good time to invest in fixed maturity plans as the interest rates are high. If rates keep moving up, we will launch new plans.”
Short-term yield on debt instruments such as commercial paper is between 7 and 8 per cent.
If we calculate the gross yield, after deducting asset management expenses, the gross yield can be anywhere between 6.5 and 7.25%. Fund managers cannot give indicative returns on fixed-term portfolios.
As per latest hike fixed maturity plans for 90 days can offer returns upwards of 6 per cent, while fixed deposit for 90 days tenure are offering 4 per cent interest.
Returns gained in FMPs depend on portfolio construction and in which instrument(s) money has been invested.
Alok Singh, head (fixed income) of Fortis Mutual Fund said, “Fixed-term plans become attractive when short-term rates move up. FMPs though come with a rider of no liquidation. Unlike open-ended funds where investors can go for redemption, money in FMPs is locked up for the tenure of fund. Investors who have three months to one-year investment horizon can earn high yields at maturity in a FMP.”
Friday, September 10, 2010
RBI report says, increase in bank deposits by 14.44 per cent
As per data available, by fortnight ended August 27, there was increase in bank fixed deposits by Rs 38,658 crore as against a decline of around Rs 8,000 in the previous fortnight, which shows recent raise in deposit rates by banks have succeeded in attracting the customers.
As per the Reserve Bank of India (RBI), latest data, there has been an increase of 14.44 per cent on a year-on-year basis, in bank deposits.
RBI in first quarter monetary policy review had asked banks to improve deposit growth therefore, banks started raising rates. Most banks have raised rates of short- and medium-term fixed deposit by up to 150 basis points.
In its policy review, RBI has projected 18 per cent deposit growth for 2010-11 but deposit growth has not exceeded 15 percent in this financial year.
During the fortnight bank credit had come down by Rs 13,114 crore. At the end of fortnight bank credit had increased by 19.4 percent on a year-on-year basis. And the outstanding bank credit was reported to be at Rs 33,51,396, against Rs 28,06,741 crore at the end of the previous fortnight.
Bankers are expecting modest credit demand in the current quarter. However, there has been increase in demand during the first quarter of the financial year, mainly because there was huge demand from telecom companies for 3G and broadband wireless access.
A senior public sector executive said, “Credit flow may not have happened from the banking system but corporate have availed of the alternate sources. They have raised funds from other routes like commercial papers (CPs) and mutual fund.”
Moreover, last month profits on CPs touched to one-year high as banking system had shifted to base rates as corporates had no means to raise short-term capital.
A senior executive of another public sector bank, “Demand for credit is not robust. We had expected a moderate credit growth in this quarter. With funds flowing from other sources to the commercial sector, demand from banking will be slow for some more time.”
Although for the current financial year the apex bank has projected 20% growth in credit.
Number of banks has also raised their benchmark prime lending rates (BPLR) in order to encourage more customers to move to the base rate system. The base rate system was introduced from July 1. Till now, the borrowers have not shifted to base rate system.
Thus, during fortnight there has been increase in deposit growth and drop in credit growth, banks’ investment in government securities has also moved up by Rs 23,674 crore.
As per the Reserve Bank of India (RBI), latest data, there has been an increase of 14.44 per cent on a year-on-year basis, in bank deposits.
RBI in first quarter monetary policy review had asked banks to improve deposit growth therefore, banks started raising rates. Most banks have raised rates of short- and medium-term fixed deposit by up to 150 basis points.
In its policy review, RBI has projected 18 per cent deposit growth for 2010-11 but deposit growth has not exceeded 15 percent in this financial year.
During the fortnight bank credit had come down by Rs 13,114 crore. At the end of fortnight bank credit had increased by 19.4 percent on a year-on-year basis. And the outstanding bank credit was reported to be at Rs 33,51,396, against Rs 28,06,741 crore at the end of the previous fortnight.
Bankers are expecting modest credit demand in the current quarter. However, there has been increase in demand during the first quarter of the financial year, mainly because there was huge demand from telecom companies for 3G and broadband wireless access.
A senior public sector executive said, “Credit flow may not have happened from the banking system but corporate have availed of the alternate sources. They have raised funds from other routes like commercial papers (CPs) and mutual fund.”
Moreover, last month profits on CPs touched to one-year high as banking system had shifted to base rates as corporates had no means to raise short-term capital.
A senior executive of another public sector bank, “Demand for credit is not robust. We had expected a moderate credit growth in this quarter. With funds flowing from other sources to the commercial sector, demand from banking will be slow for some more time.”
Although for the current financial year the apex bank has projected 20% growth in credit.
Number of banks has also raised their benchmark prime lending rates (BPLR) in order to encourage more customers to move to the base rate system. The base rate system was introduced from July 1. Till now, the borrowers have not shifted to base rate system.
Thus, during fortnight there has been increase in deposit growth and drop in credit growth, banks’ investment in government securities has also moved up by Rs 23,674 crore.
Thursday, September 9, 2010
What is a fixed maturity plan?
Fixed maturity plans, or FMPs are investment schemes floated by mutual funds. Similarly to bank fixed deposit (FD), FMPs have different maturities like three months, six months, one and two years and rarely for three years.
FMPs are invested in instruments of matching maturity therefore investors get a rough idea how much returns he will earn at the time of subscription. There is a lock-in-period therefore investors get protection against interest-rate risks.
Moreover, on FMPs with a maturity of over one year investors get tax advantage over fixed deposits. In FMPs, investors get an option to pay tax on long-term capital gains at 10% without applying indexation or 20% after applying indexation to the cost of acquisition.
On the other hand, investor has to pay tax on interest earned from FDs according to his tax bracket. But, FMPs don’t offer assured return or capital protection, as investor get in bank FDs.
Before investing in FMPs there are few things which should be taken into consideration. Two years ago, during the economic crisis many fund houses got into trouble as they had invested in low-rated papers from dubious companies, mainly in the real estate, so it becomes very important to check the reputation of the fund houses. However, fund houses managed to come out safely from the terrible situation as the regulator intervened in the matter and led a helping hand to them.
These days’ investing in FMPs is risky as you will neither have an indicative portfolio nor return so everything will depend on the integrity of fund houses.
Generally an investor should not exit till FMPs get mature, but fund houses now days list FMP on stock exchanges so that investors can easily exit if they are in urgent need of money. In this there is no guarantee of enough liquidity and get good value.
Therefore, investment in FMPs should be made only when you are prepared to take a little risk to earn bigger tax- efficient returns.
FMPs are invested in instruments of matching maturity therefore investors get a rough idea how much returns he will earn at the time of subscription. There is a lock-in-period therefore investors get protection against interest-rate risks.
Moreover, on FMPs with a maturity of over one year investors get tax advantage over fixed deposits. In FMPs, investors get an option to pay tax on long-term capital gains at 10% without applying indexation or 20% after applying indexation to the cost of acquisition.
On the other hand, investor has to pay tax on interest earned from FDs according to his tax bracket. But, FMPs don’t offer assured return or capital protection, as investor get in bank FDs.
Before investing in FMPs there are few things which should be taken into consideration. Two years ago, during the economic crisis many fund houses got into trouble as they had invested in low-rated papers from dubious companies, mainly in the real estate, so it becomes very important to check the reputation of the fund houses. However, fund houses managed to come out safely from the terrible situation as the regulator intervened in the matter and led a helping hand to them.
These days’ investing in FMPs is risky as you will neither have an indicative portfolio nor return so everything will depend on the integrity of fund houses.
Generally an investor should not exit till FMPs get mature, but fund houses now days list FMP on stock exchanges so that investors can easily exit if they are in urgent need of money. In this there is no guarantee of enough liquidity and get good value.
Therefore, investment in FMPs should be made only when you are prepared to take a little risk to earn bigger tax- efficient returns.
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