Falling Interest Rates

aja

Well-Known Member
#1
Hellow Friends,aja again :)

I am 52yrs old.

Last few days I had a good discussion with some of my oldie friends.

Whoever have a pension have no issue.But some us are really worried because of these constant falling of interest rates on fixed deposits.

For example-

I have 50L and I used to get 9% ROI in year 2014-15.But then it started to fall and now its 6.25%

50L=9%=4.5L yearly

Vs

50L=6.25%=3L yearly

Interest Rates dropping down more due to NPA's,RBI's Low Rate Loan Schemes to recover NPA and some of the unclear policies of Govt.Well,you know all the economics better than me.

So if it dropped down more to 5% then?

Some senior in our group informed us that Govt will make FD Interest=Saving Interest which will be 3%

I really dont know how to face this and its really affecting my trading and a personal life.I dont have any other income source.
(I dont consider myself a trader now.Thats a different topic)
 

simplebuthard

Working as Trading Assistant. Hire me !!
#2
Yes, the worry is natural and valid. This worry happens because the inflation in our day to day life not coming down as interests in FD came down. If inflation comes down on our daily purchases of things, we would not be worrying about falling interest rates.

In another end, we now need to take some extra risk on our money to earn what we had previously around 9% rates. Better diversify your savings into investments. What you had so far, is called as savings.

Now what you need to do is, invest instead of savings. Consult a financial planner who are experienced.

Incase if you want to know how to invest, remember to diversify.

There are few ways.

1. P2P lending
2. Monthly income giving corporate bonds, debentures
3. stocks offering high dividends.
 
#3
Well, if anything one can do, is invest 4.5 lakhs in Post office monthly return scheme (9 lakhs for joint account) for 5 years and channel the monthly income in mutual fund SIP.

If you compare the various monthly income schemes, whether bank FD or bonds or MFs, you will perhaps find the post office scheme the best and the easiest. Of course, also the safest.
 
#4
Hmmm.. @aja

Hope you know The Interest Income from bank fixed deposit is fully taxable.

Have you calculate TDS on your FD interest in 2014 / Income Tax if you fall in 20% - 30% Income Bracket / Return after Inflation.

Have you calculate TDS on your FD interest in 2017 / Income Tax if you fall in 20% - 30% Income Bracket / Return after Inflation.

After deducting all that you will get REAL RATE OF RETURN.

PLEASE FIRST KNOW WHAT IS YOUR REAL RATE OF RETURN. HOW TO INCREASE IT IS DIFFERENT PART.
 

rjshem

Well-Known Member
#5
G
Hellow Friends,aja again :)

I am 52yrs old.

Last few days I had a good discussion with some of my oldie friends.

Whoever have a pension have no issue.But some us are really worried because of these constant falling of interest rates on fixed deposits.

For example-

I have 50L and I used to get 9% ROI in year 2014-15.But then it started to fall and now its 6.25%

50L=9%=4.5L yearly

Vs

50L=6.25%=3L yearly

Interest Rates dropping down more due to NPA's,RBI's Low Rate Loan Schemes to recover NPA and some of the unclear policies of Govt.Well,you know all the economics better than me.

So if it dropped down more to 5% then?

Some senior in our group informed us that Govt will make FD Interest=Saving Interest which will be 3%

I really dont know how to face this and its really affecting my trading and a personal life.I dont have any other income source.
(I dont consider myself a trader now.Thats a different topic)
Get a good financial planner. A good financial planner should be able to get u atleast 10% returns on ur investment and keep u away from ur worries .
 

aja

Well-Known Member
#6
Such News created more fear in a mind of a depositors like me-
Jaitley hints FRDI Bill will be reviewed

http://www.thehindu.com/business/Ec...d&utm_medium=RSS&utm_campaign=RSS_Syndication

Bank depositors’ fears about the safety of their savings — once the Centre enacts the proposed new law for resolving financial entities’ bankruptcy — may be premature as the legislation is still at the drafting stage and could see several ‘corrections’ before its passage, Finance and Corporate Affairs Minister Arun Jaitley said on Friday.

Expected to be tabled in Parliament’s winter session that starts December 15, the Financial Resolution and Deposit Insurance (FRDI) Bill of 2017 proposes scrapping the Deposit Insurance and Credit Guarantee Corporation (DICGC) that guarantees repayment of all bank deposits up to ₹1,00,000 in case a stressed bank is liquidated.

Ambiguity over savings
There is ambiguity on how depositors’ savings will be protected in stressed banks and other financial entities under the new law, which also includes a ‘bail-in’ option to resolve financial entities’ stress. A bail-in option entails a bank issuing securities in lieu of the money deposited in its coffers. Asked about the implications of this clause, Mr. Jaitley said the drafting process of the Bill is still under way and it could be reviewed as part of the regular drafting process for new legislations.

“The Bill still has to go through the overall drafting process. The Parliamentary committee can offer drafting suggestions. Thereafter it will go back to the Cabinet,” Mr. Jaitley said.

Will seek feedback
“The Cabinet will place the recommendations in the public domain and ask for feedback. So I think a lot of corrections will take place,” the Minister said. Instead of the DICGC, the Bill envisages a Resolution Corporation under the Finance Ministry with representatives from the stock market, banking, insurance and pension fund regulators. Lenders, which have to pay a premium to the DICGC for insuring deposits of up to ₹1 lakh, would have to pay a sum to the Resolution Corporation as per the proposed Bill. But it is silent on the insured amount.

“The Corporation shall, in consultation with the appropriate regulator, specify the total amount payable by the Corporation with respect to any one depositor, as to his deposit insured under this Act, in the same capacity and in the same right,” the draft Bill states, creating doubts about the extent of deposits that will be guaranteed as also whether depositors may face varying degrees of haircuts or writedowns on their savings at different stressed entities.

The Corporation will be given a year’s time to resolve problems facing firms in trouble.

 

aja

Well-Known Member
#7
Banks can wipe out your money-
http://www.deccanchronicle.com/360-degree/031217/banks-can-wipe-out-your-money.html

Bail-in clause in the proposed law can make you lose your rights on your bank deposits.

As part of a host of banking reforms, the Central government has approved a bill in June 2017 to enact a new law framing rules for the resolution of failing banks, whose details that surfaced on social media made all bank depositors a worried lot. If the government goes ahead with this move, it will give enormous “bail-in” powers to a proposed rescuing body called Resolution Corporation. The corporation will be set up under the Financial Resolution and Deposit Insurance Bill and can invoke bail-in provisions for saving a bank which is on the verge of collapse.

For those uninitiated with financial lexicon, the bail-in is method used for rescuing a financial institution, which is on the brink of failure by making its creditors and depositors take a loss on their share holdings or deposits. A bail-in is the opposite of a bail-out, which involves the rescue of a financial institution by external parties, typically governments using taxpayers’ money. Typically, bail-outs have been far more common than bail-ins, but in recent years after massive bail-outs some governments now require the investors and depositors in the bank to take a loss before taxpayers.


However, the Narendra Modi government has incorporated the bail-in provision under the proposed the Financial Resolution and Depo-sit Insurance (FRDI) Bill, 2017. Currently, the Bill is under examination of a select Parliamentary committee. The government plans to introduce in the Bill in the Winter Session of Parliament. Under Section 52 of the FRDI Bill, the powers of the Resolution Corporation are so extensive that it can cancel a liability of a bank — which means that it can declare the bank doesn’t owe you any money though you have deposited your hard earned money with it. Under the same section, it can modify or change the form of liability — the import of it is that if you have deposited say Rs 10 lakh for 5 years intending to use the money for your child’s graduation or marriage, the corporation can be convert it into a locked-in deposit of 20 year tenure without your consent. The Bill also has a provision that allows the RC to exempt the failing bank for fulfilling its obligations under a contract or an agreement.

In simple words, it means that your savings account balance of Rs 15 lakh can be reduced to Rs 1 lakh, the maximum covered by the 1961 deposit insurance law. Or they can convert your SB balance of Rs 15 lakh to a fixed deposit, repayable after five years, giving you of five per cent annual interest. And you can do nothing about it. No courts can intervene into it unless you challenge the very law itself. The bail-in provision was used in Cyprus in 2013. As a result, the uninsured depositors (those with deposits larger than €100,000) in the Bank of Cyprus lost almost half of their deposits. In return they received stocks in the bank, however, the value of these stocks were nowhere near most depositor's losses. Uninsured depositors in Laiki, the nation's second-largest bank, lost everything as the bank failed.

Typically, banks come under pressure when the economy is in downturn as large corporations do not repay money on time, leading to stress. The problems faced by banks could be due to economic downturn, or lack of regulatory oversight that allowed banks reckless lending, or mismanagement of the bank. Therefore, it is criminal to ask depositors to bail-in a mismanaged bank. As per the normal banking prudence, lenders insist on 150 per cent collateral security from the borrower in form an asset for granting a secured loan. For example, if a borrower wants Rs.100 as loan, he has to provide security worth `150 before availing the loan. In such a case, the question arises as to why the bank needs the depositor’s money for save a bank. If the bank managements know that they would anyways be saved, would that not lead to further corruption and slackness in banks?

If the bail-in is essential, should the government change the wording of the Bill to first countermand the money of big companies in a top-to-bottom approach. As the banks tweak rules to lend big companies, it must be the deposits of the companies that must be used for bail-in. India never had such bail-in provision. The government had established Depositor Insurance and Credit Guarantee Corporation in 1978 to insure at least Rs 1 lakh of the depositors’ money. Though the insured threshold was never raised, Rs 1 lakh in 1978 equals to the current Rs 13 lakh after adjusting the inflation.

It is illogical for the government to expect depositors to bail out the banks, when they don’t get any share in profits. This goes against the very norms of natural justice whereby rights and duties ought to be equal and corresponding. The Union Cabinet, however, went ahead with approving a Bill having such a monstrous provision. If it is approved by Parliament, people, more so the senior citizens would be left high and dry. Let’s hope some sense dawns amongst the powers-that-be and the bail-in provision is thrown into the dust bin.
 

aja

Well-Known Member
#9
I wonder if this applies to the Post Office also.
No,it doesnt apply to the Post Office as its a fully Central Govt Undertaking.
Post Office dont deduct TDS (thats the benefit) but the interest is fully taxable.
The prob is-I cant park all off my fund there as it has some tab for a deposits.Also,udhar kaam bohot dheela hai.
You cant monitor your money as its not online yet.
 

natjay

Well-Known Member
#10
@aja

Consider the options of bond funds, liquid funds and money manager funds.

Since last year, I've been squirreling in investible surpluses mainly in these two funds:
* Aditya Birla Sun Life Dynamic Bond Fund
* Reliance Money Manager Fund

A back of the envelope calculation shows the returns from these to be in the range of 8-8.75%

Sure, it's not fixed returns but it's far better (and tax efficient) than FDs. You can go for Systematic Withdrawal Plan (SWP) option to withdraw money as and when you need it.

I used to be an assiduous FD investor between 2008 and 2015. Since last year, I've completely shifted to mutual funds (equity, liquid, bond & money manager) alongside my regular trading. I honestly feel today that FDs are over-rated and heading towards obsolescence, given the inevitability of low interest rates.
 

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