What should FD investors do in falling interest rate time?

What should  FD investors do in falling interest rate time?

Decreasing inflation rate and demand of growth are putting some pressure on RBI to decrease the interest rate. Calls for lower interest rate getting louder day by day as the industry and government both are seemed determined towards high growth. The big question what should the fix deposit investor in current environment who do not want risk of the share market’s ups and downs.

Many banks are offering 8.5% to 9.5% interest on fix deposit till tenure 5 years. If you want to take a little bit risk, you can earn more from companies fix deposit. There is much possibility of rate cut in 2015 by RBI. It is the right time to lock your money in these instruments.

The largest public sector bank SBI is offering 8.5% on its fix deposit. Of course you should go with high rated NBFC or companies fix deposit with a little bit of risk. For 3 year fix deposit, HDFC is offering 9.0%, Mahindra Finance is offering 9.75%, Shriram Transport FD offering 10.5%, Bajaj Finance is 9.65% offering and GATI is offering 12 % according to their credit rating.

Now a days many manufacturing companies are popular among investors. JK paper, Kores India, JK Tyres are offering between 9.5 to 12% return which is much higher than bank fix deposit. Many companies are offering monthly income option. Companies pay the interest every month or quarterly or half yearly as per your choice. Retired individuals and senior citizen often look for these options which give them fix monthly income.

Since fixed deposits are unsecured instruments, investor should go with high rated and well managed companies. AAA or AA ratings are consider very safe among investors in fix deposit.

If you have doubt about investment product and want more information regarding investment or you need investment services, feel free to ask us. We also conduct the seminar on investment and financial planning. If you are interested for seminar in your city just drop the mail.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

National Pension Scheme

National Pension Scheme

In earlier days, only government employees were eligible for life time pension after retirement. After demise of employee, the pension continues to his/her spouse and dependent children. With the passing of time, due to the increasing no. of retired Govt. employee the liability of the government has increased tremendously. It has felt across the world. Increase in life expectancy age and better medical facility the expected increased liability, defined pension proved like a ticking time bomb for Indian government. 

The defined benefit pension means guaranteed pension or the pre decided pension benefits or fix benefits. After the report of three different studies, the defined contribution pension system has been replaced. On the basis of these studies, the NPS (New Pension Schemes) was made mandatory for central govt employees except the Armed forces with effect from 1st January, 2004. 

In our country, only 12% the working population covered under pension schemes. To cover the large no. of population for pension benefit, NPS has opened for all Indian citizen between age of 18 and 60 with effect from 1st May 2009. The name has been changed from New Pension Scheme to National Pension Scheme.

The main features and architecture of NPS:

• PFRDA (Pension Fund Regulatory and Development Authority) issues the investment guidelines for investment and manage the fund. It is regulatory authority for NPS.

• NPS has a two tier structure. Tier-1 account does not allow premature withdrawal and it is mandatory for all Govt. employees joining after 1st Jan, 2004. Tier-2 account is withdrawable account. Individual can make withdrawal prior retirement without telling any reason. To open Tier-2 account, Tier-1 account is mandatory. The monthly contribution would be 10% of the salary and DA to be paid by the employee.

• The minimum amount per contribution Rs 500 per month and one should invest at least once in a year. The minimum annual contribution is Rs 6000 in each subscriber account.

• If unable to deposit minimum annual contribution, a penalty of Rs 100 would be levied and account would be dormant. A dormant account would be closed when the account value falls. For re-active the account, subscriber have to pay minimum annual contribution amount and penalty.

• The normal exit option is available at or after the age of 60. At the time of exit, the individual would be required at least 40% corpus to purchase annuity. If any individual decide to exit prior age 60, then 80% corpus mandatory to purchase annuity. In case of subscriber’s death, the whole 100% available amount will be given to nominee.

• NPS scheme has lowest cast model in the world. The fund management charge is 0.0009% of the total AUM managed. The fund managed by 8 different fund houses with the help of professional fund managers. LIC , SBI and UTI manage the government employees and other subscriber’s  funds. HDFC, ICICI, Kotak Mahindra, Reliance and DSP BlackRock fund houses manage only non-govt subscriber’s funds. NPS allows to subscribers to switch from one fund house to another fund house.

• NPS offers two broad approach to invest. First is Active choice and the other is Auto choice. In Active choice, the subscriber will decide the asset classes for investment. In Auto choice, the funds will be invested according to life cycles of subscriber. Asset allocation would be change based on age of subscriber automatically in this option.

These are the main features which we have discussed. The article has been a bit lengthy. For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in