COMMENT: “IN A RISING RATE SCENARIO, SHORT DURATION PLANS SUCH AS LIQUID FUNDS, ULTRA SHORT TERM FUNDS AND FIXED MATURITY PLANS(FMPs) ARE THE RIGHT CHOICE.”

POWERED BY:-ANUP TIWARI YASHMEENMD. DANISH KHAN TRISHA SINGH

OUR PROJECT OBJECTIVE IS:-

WHAT IS INTEREST RATE AND REASION THAT’S IMPACT ON INTEREST RATE.

WHAT IS LIQUID FUNDS, ULTRA SORT TERM FUNDS AND FIXED MATURITY PLANS(FMPs).

WHY LIQUID FUNDS, ULTRA SHORT TERM FUND AND FIXED MATURITY PLANS(FMPs) ARE THE RIGHT CHOICE, IN A RISING RATE OF SCENARIO.?

WHAT IS INTEREST RATE

AN INTEREST RATE AT WHICH INTEREST IS PAID BY BORROWERS FOR THE USE OF MONEY THAT THEY BORROW FROM A LENDER.

INTEREST RATE OFTEN CHANGE AS A RESULT OF INFLATION AND CENTARL BANKs.

REASION THAT’S IMPACT ON INTEREST RATE:-BANK RATE REPO RATE REVERSE REPO RATE BASE RATE & DEPOSIT RATE

BANK RATE

RBI LEND TO THE COMMERCIAL BANKS THROUGH ITS DISCOUNT WINDOW TO HELP BANKS MEET DEPOSITOR’S DEMANDS AND RESERVE REQUIREMENTS FOR LONG TERM.

THE BANK RATE RBI CHARGE THE BANK FOR THIS PURPOSE IS CALLED BANK RATE.

IF RBI WANTS TO INCREASE LIQUIDITY AND MONEY SUPPLY IN MARKET, IT WILL BE DECREASE THE BANK RATE.IF RBI WANTS TO REDUCE LIQUIDITY AND MONEY SUPPLY IN MARKET, IT WILL BE INCREASE THE BANK RATE.

CURRENT BANK RATE IS:- 9%

REPO RATEREPO RATE IS THE RATE AT WHICH RBI LENDS TO COMMERCIAL BANKS GENERALLY AGAINST GOVERNMENT SECURITIES.

REDUCTION IN REPO RATE HELPS THE COMMERCIAL BANK TO GET MONEY AT CHEAPAR RATE.INCREASE IN REPPO RATE DISCOURAGE THE COMMERCIAL BANKS TO GET MONEY AS THE RATE INCREASE AND BECOMES EXPENSIVE.CURRENT REPO RATE IS:- 8%

REVERSE REPO RATEREVERSE REPO RATE IS THE RATE AT WHICH RBI BORROWS MONEY FROM THE COMMERCIAL BANKS.

CORRENT REVERSE REPO RATE IS:- 7%

BASE RATE

IT IS THE MINIMUM RATE OF INTEREST THAT A BANK IS ALLOWED TO CHARGE FROM THE CUSTOMERS. UNLESS MANDATED BY THE GOVERNMENT, RBI RULES STIPULATES THAT NO BANK CAN OFFER LOANS AT A RATE LOWER THAN BASE RATE TO ANY OF ITS CUSTOMERS.

NOTE:- DEFFERENT BANKS GENERLLY HAVE DIFFERENT BASE RATE.

DEPOSIT RATE

THE INTEREST RATE PAID BY FINANCIAL INSTITUTIONS AND BANKS TO DEPOSIT ACCOUNT HOLDER. DEPOSIT ACCOUNTS INCLUDE CERTIFICATES OF DEPOSIT & SAVINGS ACCOUNTS.

NOTE:- DEFFERENT BANKS GENERLLY HAVE DIFFERENT DEPOSIT RATE.

LIQUID FUNDSLiquid funds are a type of mutual funds that invest in securities with a residual maturity of up to 91 days. Assets invested are not tied up for a long time as liquid funds do not have a lock-in period.

Features• Invest in short-term government securities and certificate of deposits, making them reasonably secure• Provide flexibility to invest or withdraw any time without any exit load or penalty.• Some mutual fund houses even offer an ATM card to withdraw the funds• Tax efficient schemes• Have historically provided higher returns than savings bank interest rate

ULTRA SHORT TERM FUNDS

These are low volatility ultra short term debt schemes that offer investors an opportunity to participate at the shorter end of the yield curve.

Features1. An open-ended scheme2. Objective is to provide a high degree of liquidity3. Underlying portfolio consists of a range of short-term debt and rated money market instruments that provide moderate yield4. Aims to generate reasonable returns5. Ideal for investors with short term investment horizons

Fixed Maturity Plans (FMPs)

Fixed Maturity Plans (FMPs) are closed ended Debt Mutual Funds that invest in debt instruments with a specific date of maturity that is less than or equal to the maturity date of the scheme. Securities are redeemed on or before maturity and proceeds are paid to the investors.

Features:-•Capital Protection •Better Returns •Less Exposure to Interest Rate Risk •Tax Benefit •Double Indexation Benefit •Lower Cost

Interest rate Liquidity PrematurityWithdrawal

Saving Account

4-6 % Yes …..

Fixed Deposit(FDs)

7-9 % No No

Liquidity Funds/USTF/FMPs

8-10 % Yes Yes

WHY LIQUID FUNDS, ULTRA SHORT TERM FUND AND FIXED MATURITY PLANS(FMPs) ARE THE RIGHT CHOICE. ?

Start

If Inflation=7% Saving account IR=4.5%

Actual return=interest rate – inflation rate

Actual return=4.5-7%

Actual return=(-2.5%)

Stop

Start

IF Inflation=7%Liquid funds=9.7

Actual return=interest rate – inflation rate

Actual return=9.7-7%

Actual return=2.7%

Stop

“When interest rate are rising, it is better to remain invested in short term products to minimize the risk and reinvest the higher levels.”

Killol Pandya, Head , Fixed Income , Daiwa Mutual Funds

“If an investor has idle cash in his current or saving account, he should look at investing purely in liquid funds where there is relatively lower interest rate risk”

Lakshmi Iyer, Head of fixed income & products, Kotak Mutual fund

“Shorter duration funds are not affected as much by interest rate fluctuations as the long term-term ones.”

Puneet Pal, Debt Fund manager, UTI Mutual Funds

Thank You