RBI Policy: Should you lock your money in an FD as the rate cut cycle will start soon?

After the US Federal Reserve reduced policy rate by 50 bps from its 23-year high, the Reserve Bank of India (RBI) is likely to follow suit and cut the benchmark policy ratemaybe at the end of this year. And since the interest rate cut cycle will begin in December, investors are advised to keep their money in fixed deposits (FDs) as soon as they can.

Experts recommend to investors block part of your money in fixed deposit systems. The meeting of the RBI’s monetary policy committee (MPC) will begin on October 7 (Monday) and will end on October 9 (Wednesday), when it is scheduled to announce its decision on monetary policy. Meanwhile, a recent report has suggested that the RBI maintain a status quo about politics.

block the money

Some experts we spoke to suggested that retail investors are advised to lock their savings in fixed income instruments in view of the current high interest rates.

“Fixed deposits are one of the most sought-after investment products by retail investors due to their guaranteed returns and safety of capital. For a couple of years, we have been witnessing good FD interest rates as the RBI had a constant view of interest rates in your monetary policies to cool inflation and money supply in the market If your financial goal is 2 or 3 years away, you can now lock the required amount in a fixed deposit. “says Sebi’s Preeti Zende. -registered investment advisor and founder of Apna Dhan Financial Services.

However, investors are advised to respect the rules of asset allocation portfolio management in which they must allocate different parts of their portfolio between assets, including stocks, bonds, gold and fixed deposits. Therefore, only a small part of the portfolio should be invested in fixed income instruments, including fixed-term deposits.

“It is not advisable to lock up a large amount of money in an FD. They are taxable and in the long run, may not generate inflation-hedged returns. Therefore, one needs to take a well-calculated decision based on the required allocation requirements. of assets from their financial objectives,” he adds.

Deepak Aggarwal, a Delhi-based chartered accountant, says, “A fixed deposit is a good investment when you want to make a safe investment. However, it does not replace a wealth-generating asset like equity. But a predefined portion can be allocated from the portfolio to fixed deposits.”

Here we list the key points you need to remember before investing in a fixed deposit.

4 key points to remember when keeping money in an FD

1. Invest early: It is advisable to invest in a fixed deposit instrument before the RBI Policy if you are planning to invest in the short term. although a Bank of Baroda research report recently suggested that the RBI is unlikely to cut the policy rate on October 9, why would we wait until the December policy when interest rates are already hovering around their highs?

2. Not overboard: Only a small part of the portfolio should be allocated to fixed deposits. Just because interest rates are hovering at a high level, investors should not be tempted to allocate a greater proportion of their assets to fixed income instruments.

3. Fiscal component: While investing in a fixed income instrument like an FD, one must keep in mind the income tax component too. All fixed deposit instruments are taxable as per their tax schedule.

4. Asset rebalancing: When deciding to allocate a portion of your portfolio to fixed deposits, you should ensure that you do so asset rebalancing and maintenance your asset allocation in the proportion you had previously decided.

For example, if you had decided to keep equity at 60 percent and now stock prices have increased by 10 percent, you would reduce the equity portion by 10 percent to invest the same amount in debt to maintain the ratio. equal.