Invest Rightly - Monthly Bulletin for February 2015 :: HDFC Sec, report

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The sooner-than-expected rate cut by the Reserve Bank of India (RBI) bolstered the equity markets to new record highs. And the industry experts expect a series of rate cuts through the rest of the year. A fall in interest rates spells good news for the borrowers. But a fall in interest rate on loans implies a fall in rates on xed deposits and other xed income instruments, which is not the best news for investors. Hence the time is ripe for investors to lock into xed income investments Lock into Long-Term Corporate Fixed Deposits In a falling interest rate scenario, you should consider opting for a longer tenure xed deposit if you are not clear about the time horizon for the investment. This will help you avert the “reinvestment risk”. The term re-investment risk describes a situation in which you will have to settle for lower interest rates on FDs when the deposits come up for renewal. For example, you may opt for a one year xed deposit since the rates are 25 basis points higher than a xed deposit of 1-3 years. But when you reinvest the money after 1 year, the deposit rates then may be much lower than the rates o ered now.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3011180