People especially middle class people depend on the interest of Bank FDs and the interest. But now the trend is reverse, the interst on FDs has gone down significantly. Bank fixed deposit rates have fallen significantly over the past two years. And they are set to fall further, with the new RBI chief Urjit Patel making a 25-basis-point cut in repo rate in his first monetary policy.
The FD interst rates are further expected to go down.Hopes of further rate cuts from the RBI have risen on expectations that inflation could soften further in the coming months. The recent cuts in small savings rates could also nudge banks to lower deposit rates.
“The repo cut along with the modest reduction in various small savings rates, would nudge banks to lower their deposit and, in turn, lending rates,” rating agency ICRA said in a note. Brokerages see the RBI reducing repo rate by a further 25-50 bps this fiscal year which ends on March 31, 2017.
In total, the RBI has reduced rate by 175 basis points since January 2015. And according to wealth advisory firm Outlook Asia Capital’s estimates, India’s biggest lender State Bank of India has lowered its one-year fixed deposit rate by 135 basis points during the period.
The RBI’s rate cuts have, on the other hand, benefitted those who had invested in debt mutual funds, particularly in medium- to long-term government/corporate bonds.
According to Value Research, the average annual return in mutual funds in the gilt or government bonds (medium- and long-term) category is 12.5 per cent in the past one year and 12.2 per cent in past three years.
