Financial Investment Instrument in Low

Interest rate environment for retail

Investor
Submitted To:

Presented By:

ANIL YERI

Himanshu Mishra
Kamini Malvi

VASUDHA MATTA

Mohit patel
Komal patel

INDEX

1.

Interest Rates.

2.

Why interest rates are cut.

3.

Effect of decrease in interest rates.

4.

Where to invest during low interest rates.

5.

Bonds

6.

Equity Funds

7.

Mutual funds

8.

Conclusion

INTEREST RATE

A interest rate is that rate at which interest is paid by borrowers for the
use of money that they borrow from lenders & thats why it is often called
as the value of money.
Actually it is the rent paid for using the money in simple words.

REASONS WHY RBI CUTS INTEREST RATES

To increase Liquidity into the nation by the help of implementing monetary

policies in the economy.

To control the inflation rates with the help of liquidity of products and their
demand in the market.

Which further leads to increase in G.D.P to achieve economic growth.

http://profit.ndtv.com/news/cheat-sheet/article-five-reasons-why-the-rbi-should-cut-interest-rates-319654

Effects of Decrease in Interest Rates

A rate cut will raise loan demand and can boost net interest income of bank which
will help banks to reduce NPA.

Reduce the incentive i.e., interest paid on term deposit and demand deposits to
save.

Boosts up demand for product especially ones brought on credit.

Makes equity more attractive as investment leads to increase in liquidity.

Depreciation in the exchange rate.

WHERE TO INVEST DURING LOW

INTEREST RATES?
BONDS

WHEN INT.RATE

EQUITY

WHEN INT.RATE

MUTUAL FUND

WHEN IN.RATE

BOND PRICE

EQUITY PRICE

MF VARIES

BONDS
A bond is a specific type of security that is sold by firms or governments. It is a way
for the firm or government to borrow money at a certain interest rates. In return
for buying the bond and investor gets a certain interest rate for the duration of the
bond

ADVANTAGES
Relatively low volatility
High liquidity
Legal protection
A variety of term structure
https://www.boundless.com/finance/textbooks/boundless-finance-textbook/bond-valuation-6/advantages-and-disadvantages-of-bonds-65/advantages-of-bonds-296-3887/

Decreasing Interest Rates

In this example, a Rs. 100 bond is issued with a coupon rate of 5%, resulting in a payment
of Rs. 5 per year to the bondholder. If interest rates decline to 3%, then the perceived,
and actual, value of the bond will increase because of its demand in the market. An
investor would pay a premium i.e., more than Rs. 100 bond with a coupon rate of 5% on
the secondary market when new issues of similar quality are paying 3%.
Here again, regardless of the prevailing interest rates, the coupon on this bond is fixed at
5%, and the holder will receive Rs. 5 per year and on that he is paying a higher amount to
purchase it. But in order to remain in completion you should realize that the market price
of that 3% prevailing bond will decrease due to decrease in demand in the market and you
can buy more bonds of 3% then the price you paid to purchase the bond with 5% interest.
Which will ultimately increase the real incentive rates that you are earning .

http://www.money-zine.com/investing/investing/bond-prices-and-interest-rates/

EQUITY
An equity share, commonly referred to as ordinary share also represents the form of
fractional or part ownership in which a shareholder, as a fractional owner, undertakes
the maximum entrepreneurial risk associated with a business venture

ADVANTAGES
Potential for profit
Limited liability
Free transferability
Hedge against inflation
Tax advantages
http://www.yourarticlelibrary.com/economics/6-main-advantages-of-equity-shares/1517/

Example of equity shares

http://www.businesstoday.in/moneytoday/cover-story/best-stocks-to-invest-in-to-gain-from-rbi-interest-rate-cut/story/216481
.html

MUTUAL FUND
Mutual fund defined as a common pool of money in which investors place their
contributions that are to be invested with a stated objective.

ADVANTAGES
Professional investment management
Low investment threshold
convenience
Liquidity
Transparency and variety

http://www.kotaksecurities.com/ksweb/Research/Investment-knowledge-Bank/introduction-to-mutual-funds

Examples of equity mutual funds

Catogery

Name of
scheme

AUM in
crores

3-months

1-years

3-years

Small
cap/mid
cap

Fanklin
India
smaller
cos fund

2,5122

2.3%

20.6%

35.8%

http://myinvestmentideas.com/2015/10/top-10-best-performing-sip-mutual-funds-to-investin-2016/

Conclusion

It is very important to realize that you should spread your money across
different types of assets to reduce your overall risk.

Squeeze every possible rupee out of bank deposits because the interest will
be very low on each an every kind of deposits.

Also ensure that if you are investing in any market the inflation rates should
not affect your investment leading to Negative real interest rates.

THANKYOU !