Income from Safe Investments

RBI did not reduce interest rates this month, during its review, but warned banks that they would have to reduce and reduce they did. If you notice every bank has started advertising that they have reduced the interest rates on loans. If the banks have reduced interest rates on the loans they are giving, they would also reduce interest rates on fixed deposits they are taking. This is natural, as the banks make money on the spread between interest rate given and taken. At the same time Corporates feel even with the reduced rates being given by the bank, the banks are charging higher interest rates. So they are coming directly to us, with interest rates higher that what banks give us, but lesser than what they would pay the banks.

This gives us an opportunity to make higher income. But are all corporates safe? We need to be careful before investing in corporate bonds or Fixed Deposits. It is mandatory for all corporates to get their fixed deposits or bonds rated. If there is no credit rating do not invest. So if the rating is good, then you have safe fixed deposits as good as banks. Go for AAA or AA rated fixed deposits. Yes, there would be a risk, but that would be marginal. We should lock in on the high interest rates being offered by these corporates as these too would keep coming down, but slowly. Do not invest just based on interest rates. If you find this a bit difficult, then just invest in a good debt mutual fund which invests in long term bonds as these too will appreciate as the interest rates come down.