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hat there is still room for more rate cuts as wholesale and retail inflation rates have stayed benign.
With the WPI inflation hovering near zero level in December, the Reserve Bank of India can slash interest rates in its bi-monthly monetary policy meet, on February 3. The central bank has already announced the rate cut of 25 basis points in January 2015. The economists and bankers believe that there is still room for more rate cuts as wholesale and retail inflation rates have stayed benign. It is therefore an ideal time to put money in company’s fixed deposits.
However, it is important to consider following factors before making an investment in fixed deposit: Credit rating The credit rating companies including Fitch and Crisil grades the fixed deposit schemes offered by different financial institutions. The investors should compare the various schemes on the basis of credit ratings. In addition, if the investment is to be done as part of retirement savings with 30 years to go, the fixed deposits should form 30% of the total deposit portfolio.
For short term duration, the investment in company deposits, as part of total deposit portfolio can increase to 50%. In any case, investments should only be done in well-rated deposits with credit rating of AA and above. Company quality Investors should check out the past performance and future prospects of the companies they are investing in. They should analyse the company’s repayment record and other financial details like losses, debts and likewise. Liquidity Most of the deposit plans have an initial lock-in period of three to six months.
The interest rate can differ if the investor wants to withdraw the money before maturity date. For this reason, investors should ask for the applicable interest rates between lock-in period and maturity. Interest payments Select the fixed deposit plan depending on the time of interest payment. Some schemes pay interest monthly, some quarterly while some pay half-yearly or annually. The investors who require additional incomes can go for periodic interest payments.