Fixed Income Options: The government has not increased the interest rates on Small Savings Scheme for 9 consecutive quarters. Due to low interest rates, now investors are getting frustrated with schemes like FD, NSC, RD, PPF, TD. Looking at the current interest rates, it will take 12 to 14 years to double the money in these schemes. In the last 6 to 7 years, the interest rates of these savings schemes have also been cut several times. In such a situation, there is confusion in the minds of investors seeking fixed income as to where to invest money for better returns. Know what the experts have to say on this issue.
If the rates are not increased then the flow will increase in the second option!
Mahendra Jaju says that keeping the interest rates of the Small Savings Scheme at a low level from the 9th quarter does not seem to have any meaningful impact on the country’s savings rate directly. But it is to be expected that if the rates of the Small Savings Scheme are not revised as per the market changes soon, the fund flow may get diverted to other options.
Mahendra Jaju, CIO-Fixed Income, Mirae Asset Investment Managers, says that the RBI policy rate as well as the market rate remained low or stable during the last two years till May 2022. The Central Bank has increased the policy rate twice since May. Most of the hike in the lending rate too has happened recently, when the market started factoring in a possible policy change. He says that July-September 2022 is the first quarter after the change in the policy rate of RBI, so the interest rates of the Small Savings Scheme can be revised in the current quarter.
may get more interest in future
Alok Sahu, Head – Fixed Income, Baroda BNP Paribas Mutual Fund, says that although the government has not increased the interest rates of the Small Savings Scheme, but may increase it in the next review. Generally, the interest rates of small savings schemes increase with the lag of the debt and money market rates. At present, the FD rate of banks is also low, because of the liquidity in the system, small savings are becoming competitive.
what investors do
Mahendra Jaju says that debt mutual funds are currently looking better options for investment. Debt mutual funds are emerging as an option for investors. The recent jump in flows towards the Target Maturity Debt Index Fund category is indicative of this. Target Maturity Debt Index Fund also offers the same facilities as a fixed deposit. But better tax benefits and flexibility make it more attractive.
Alok Sahu says that fixed income investors should consider investing in debt schemes based on their risk appetite and time horizon. Considering the current market environment, investors can consider investing in debt funds with low to mid duration.