Why is the knowledge of interest rates importantfor a retail banker?How does it impact the sales pitch?What are investors options during high & low interest rates

Faculty name:Vishwanathan R

Batch codeHYD01AA0213

Date30-10-2013

Student Name Enrolment ID

Harivardhan E130031000112

Rajasekhar E130031000127

Kowsar E130031000129

Amit E130031000147

S. No Description

1 Interest Rates

2 Different types of Interest Rates

3 Factors affecting Interest Rate

4 Correlation between Interest Rates and Investment

5 Best investment option on current Interest Rates

6 Essential things to know for a retail banker on Interest Rates

7 Bottom Line

8 Bibliography

CONTENTS

Interest rate

This is the amount calculated as a specified percentage of the amount lent to the Borrower. This amount is paid by the borrower to the lender.

Interest rate Lender Borrower Period Current interest rate

Previous Interest rate

Bank rate RBI Commercial banks

Long period 8.75% 9.00%

Repo rate RBI Commercial banks

Short period 7.75% 7.50%

Reverse repo rate

Commercial banks

RBI Short period 6.75% 6.50%

Base rate Commercial banks

Customers Bank regulates

----- -----

Call rate Bank Bank Bank regulates

----- -----

Deposit rate Customer Bank Bank regulates

----- -----

Factors affecting interest rates

Demand/Supply of money

Govt borrowings &Fiscal deficit/OMO

RBI Inflation

When economy is growing

International forces

Interest 1 investment

Int rate investment

Correlation b/w interest rates and Investment

Investment option when interest rates

HIGH

• FMP

• NCD

• Corporate Bonds

• Bank deposits

LOW

• CD’s

• CD’s

• Stock

• Home loan

• Fixed maturity plans: A close ended fund that invest in debt and money market instrument. Focus of a fixed maturity plan is to provide a stream of income through interest payments, while exposing the investor to a lower level of risk.

• Eg: Short-term debt instruments

Best investment option on current interest rates

• These plans invest in a mix of short-term options, such as money market instruments, certificates of deposit, commercial papers etc.

• These are currently offering a yield of 9.5-10%.

• Diminishes the uncertainity of higher yields, which most of debt market products do not offer.

Why invest in FMPs now

Tax efficiency Fixed tenure Low sensitivity to interest rates. Initial investment- Rs.5000/-. Capital protection Lower cost

BENEFITS

Essential things to know for a retail banker on Interest Rates

• Flourishing economy indicates rising Interest rates, making it essential for the Banker to advise their customers on various Investment options.

• Rise in OMO confirms that Govt securities & debt market are the safest bets.

• Key Interest rate changes confirms the RBI’s intentions to combat Inflation.

• Protection through Indexation FMP's more beneficial than FD's, as the interest is not clubbed with income, & is taxed only after indexation.

• Leading FMP’s Reliance Mutual Fund, ICICI Prudential Mutual Fund, Birla Mutual Fund, TATA Mutual Fund, DSP BlackRock Mutual Fund and others.

• The investment is earmarked ONLY in BANK CDs/FDs.

• Investments & returns are guranteed.

• TDs after Indexation.

• Nri investor’s yeild rose from 8.5 to 9%, with total repatriation.

• Similar to the FD of a bank’s , in terms of a pre-determined return to the investors/ depositors.

FEATURES of FMP's

Home Loan

• It is a good investment option when the interest rates are low.

• Get loan at cheaper rate of interest

• Tenure: minimum for 15 years

Investment when interest rate is low

Bottom Line

• It is important to know the interest rates to retail bankers to guide their customer in a right way.

• Leads to increase the sales pitch

• Leads to retain a customer for a longer period.

Bibliography

• www.investopedia.com

• www.wikipedia.com

• www.rbi.org

• www.economictimes.com

• www.business-standard.com

reference

26/10/13