1. 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.”
3. 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.?
4. 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
5. 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%
6. REPO RATE
REPO 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%
7. REVERSE REPO RATE
REVERSE REPO RATE IS THE RATE AT WHICH RBI BORROWS
MONEY FROM THE COMMERCIAL BANKS.
CORRENT REVERSE REPO RATE IS:- 7%
8. 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.
9. 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.
10. LIQUID FUNDS
Liquid 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
11. 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.
Features
1. An open-ended scheme
2. Objective is to provide a high degree of liquidity
3. Underlying portfolio consists of a range of short-term
debt and rated money market instruments that
provide moderate yield
4. Aims to generate reasonable returns
5. Ideal for investors with short term investment
horizons
12. 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
13. WHY LIQUID FUNDS, ULTRA SHORT TERM FUND AND
FIXED MATURITY PLANS(FMPs) ARE THE RIGHT CHOICE. ?
Interest rate Liquidity Prematurity
Withdrawal
Saving
Account
4-6 % Yes …..
Fixed
Deposit(FDs)
7-9 % No No
Liquidity
Funds/USTF/F
MPs
8-10 % Yes Yes
14. 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
15. “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
