The central bank has maintained a status quo on the repo rate. Here is what it means for you.
The six-member Monetary Policy Committee has voted 5-1 in favour of maintaining the repo rate at 6.00%. The repo rate is the interest rate at which India’s central bank, the Reserve Bank of India, lends to commercial banks. Here are some key takeaways for the common from this Monetary Policy Review (MPR).
1 – Still A Good Time To Take A Home Loan
Interest rates on loans of all varieties have been trending downwards over the last three years. The latest MPR means that the rates will remain where they are to benefit prospective borrowers. This is especially useful for homeowners. They can continue to take new loans at attractive rates. Those who are currently repaying loans will continue to enjoy the same interest rate for now.
2 – Fixed Deposit Rates To Be Stable
You can continue to have short-term Fixed Deposits as a low repo rate translates into moderate returns from Fixed Deposits. With this MPR, the returns are expected to be stable for now.
3 – Small Savings Untouched
Returns from government schemes such as the PPF, Sukanya Samriddhi, Senior Citizens Schemes etc. have fallen in recent years. But with this MPR, their returns are expected to be stable for the immediate future.
4 – Try Liquid Funds
Investors looking for marginally higher returns and greater tax efficiency than fixed deposits can invest in liquid Mutual Funds and short-term debt funds, which contain securities with short maturity periods. They are low-risk and can be liquidated instantly, just as a fixed deposit can.
5 – For Higher Returns, Invest In Equity Mutual Funds
Interest rates on bank deposits and small saving schemes have been moderate in recent times. With the latest MPR, the rates will remain where they are. If you’re looking to earn higher returns, investing in equity Mutual Funds should be the way to go. Despite the introduction of an LTCG tax on gains above Rs. 1 lakh, equity continues to be the most attractive option for long-term savings.