A floating rate fixed deposit can be a good investment, for the next one year
- The fact that the country’s central bank is expected to continue with interest rate hikes in the near term, the product remains attractive.
- So far in two months up till now, RBI has increased the repo rate by 90 basis points to fight record inflation.
- With this, RBI's policy repo rate currently stands at 4.90%.
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What is a floating rate
This is a unique offering designed to benefit customers by enabling them with an asset class that offers the safety of a fixed deposit along with dynamic returns which are linked to the repo rates published by the central bank.
This floating rate FD can be availed for a tenure of 1 year to less than 3 years, as per the customer’s preference.
“The floating rate product is very attractive in a rising interest rate environment. People may get attracted towards this keeping in mind that they are anticipating rate hikes for one or one and a half years,” Dwijendra Srivastava, CIO – Debt at Sundaram Mutual Fund.
The fact that the country’s central bank is expected to continue with interest rate hikes in the near term to fight the record high inflation, this product stands attractive as the return rate will only go up for some time.
“For the next one year, interest rates will only go up. However, two or three years down the line interest rates will fall and that’s when people will miss out because in floating rates products the rates will be adjusted accordingly,” said debt market expert Joydeep Sen.
The bank will reset the floating FD rate on a monthly basis i.e. on the first day of every month subject to change in repo rate.
So far in two months up till now, RBI has increased the repo rate by 90 basis points. In May, RBI hiked the repo rate by 40 basis points and further increased it by 50 basis points. With this, RBI's policy repo rate currently stands at 4.90%.
“The rising interest rates environment is expected to be there for at least a year till March 2023,” said Srivastava.
The deposit amount can be as minimum as ₹10,000 but less than ₹5 crore.
AdvertisementExperts believe this is kind of an innovative product at this point of time and will open up more banks to launch it, particularly the smaller and weaker ones, who will be more competitive.
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