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Saturday, July 23, 2011

Attractive rates

Attractive interest

Interest rates have been rising for over a year now. and while investors have grappled with the fallout like rising loan rates. it's also a fact that investment options such as bank fixed deposits have turned attractive. But as financial advisers will tell you there are more attractive fixed income investments avenues than deposits alone.
One such avenue thats turned attractive is short term income funds. Short term income funds are looking good with interest rates increasing every quarter and as theses funds have low maturity and low duration portfolios currently- Mukesh Dedhia..
These funds currently have an avg yield to maturity, assuming an expense ratio of about 1% investors can expect a return of 9% over one year. Also FMPs (fixed maturity plans) are close ended debt funds that hold their investments to maturity thus eliminating the interest rate risk. Remember the RBI has been consistently raising the interest rates since March 2010. Rates have risen due to many factors like inflation, tight liquidity and economic growth. In recent weeks liquidity pressures have eased and so yields on one year papers have come off slightly.
Given the prevailing rates, one year FMPs should give pre-tax returns of 9.5%-9.6%, or post returns of 8.5%-8.7%. In comparison one-year bank deposits are currently offering 10% to-10.25% or a post tax return of 7%-7.2% at the highest slab

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