Know why you should invest in FDs, SCSS now? Experts share investment tips before repo rate revision
Fixed deposits: The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) will meet this month and decide on the next course of interest rate for the coming months. In August, the central bank decided to maintain the repo rate at 6.5% for the ninth successive time.
The upcoming meeting of the newly formed Monetary Policy Committee (MPC) of the Reserve Bank of India is scheduled for this month to deliberate on the repo rate. Analysts predict that the RBI is likely to maintain the current policy rate and stance for the tenth consecutive time.
However, there is anticipation in the financial markets that the RBI may revise the repo rate by December, signaling the possible initiation of a rate reduction phase from the start of the next fiscal year. If this materialises, it is expected to decrease interest rates across various financial instruments, including fixed deposit rates.
The repo rate is the interest rate at which the Reserve Bank of India (RBI) lends money to commercial banks, thereby impacting fixed deposit (FD) interest rates, is set by the RBI’s Monetary Policy Committee (MPC). As of now, the current repo rate in India stands at 6.5%. Commercial banks, in turn, adjust FD interest rates based on market conditions and policy changes.
Fixed-income instruments, including bank fixed deposits (FDs), corporate FDs, and small savings schemes (SSS), are currently providing decent returns. Specifically, bank FDs with a two to three-year maturity are generating a 7 per cent yield, while the government has maintained SSS rates at their current levels since September 30, 2024.
“This is a good time to take fixed-income exposure at elevated rates before the softening starts,” Amol Joshi, founder, PlanRupee Investment Managers, told Business Standard.
Bank deposit rates are expected to decrease, but they may not correspond directly with reductions in RBI rates. This is due to the ongoing high demand for credit, which requires banks to prioritize attracting deposits.
Pankaj Mathpal, managing director, Optima Money Managers, said: “RBI may cut rates by 50 bps over the next six months, starting with a 25 bps cut in December.”
He added: “If you want to invest in FDs or the Senior Citizens Saving Scheme (SCSS), now is the right time. Investors can also consider long-term debt funds.”
Fixed Deposits
Fixed Deposits (FD) are a popular financial instrument that offer a range of features and benefits to investors. They are popular investment tools becuase:
Minimum Deposit: The minimum deposit for fixed deposits can be as low as Rs 100, varying by the financial institution.
Tenure Flexibility: The tenure for fixed deposits ranges from 7 days up to 10 years, providing investors with options to suit their financial goals and needs.
Interest Rate Stability: Generally, the interest rate on fixed deposits remains fixed throughout the term. However, some banks offer schemes with rates tied to external benchmarks, allowing for potential variations.
Interest Payout Choices: Investors have various options for receiving interest payouts, including monthly to yearly payouts or a cumulative option for compounding benefits.
Early Withdrawal: Early withdrawal from fixed deposits is possible, but it often incurs penalty charges.
Loan Collateral: FDs can be utilized as collateral for loans, enabling investors to access funds while the deposit continues to accrue interest.
Overall, fixed deposits are a reliable investment option that provides stability, security, and potential benefits for investors looking to grow their savings or earn steady returns.
Senior Citizens Savings Scheme
The Senior Citizens Savings Scheme is open to individuals aged 60 and above. Those who have voluntarily retired after turning 55 are also eligible, provided they invest within one month of receiving their retirement benefits.
Under this scheme, individuals can invest a maximum of Rs 30 lakh, spread across multiple accounts while ensuring that the total investment does not exceed this limit. A key feature of the SCSS is its quarterly interest payouts, which provide a steady source of income for retirees to manage their day-to-day expenses in retirement.
The interest rate, set by the government and reviewed quarterly, currently stands at 8.2% per annum. This ensures that the scheme remains competitive with other savings instruments in the market.
The Senior Citizens Savings Scheme (SCSS) has a default tenure of five years, with the option to extend it for an additional three years upon maturity. While primarily designed for long-term investment, the scheme does allow for premature withdrawals.
Withdrawals can be made after one year, but with penalties: a 1.5% deduction if the withdrawal is made after one year but before two years, and a 1% deduction if made after two years. This feature offers some financial flexibility for seniors who may need to access their funds unexpectedly.