Interest Rates heading Northwards!

A couple of banks stopped their low interest rates schemes called "teaser loans" for mortgages. Feb 28th was the last day for the special 8.25% loans from ICICI bank and HDFC ltd.. Actually the expectation in the market was that this would be extended for another couple of months.

So, Why did the banks withdraw these loans?

This has to do with the fact that the RBI has raised the SLR which indicates that the central bank is trying to reduce the liquidity in the system. This is the first action of many that the central bank is expected to take over the next few months.

What this has also done is that it has forced the banks to raise the deposit rates on FDs for investors ( HDFC has raised the rates as of now).

But the trend is up for interest rates.

So what should we be doing now.

1. Get into any fixed loan schemes ( like I did with HDFC for my house loan) if you are planning for any.

2. There should be good opportunities for CD ( Company deposits) which may be coming out.

3. Fixed deposit rates should be heading up so wait for the interest rates-- dont get into long term FDs- five years etc.

4. Look out for debt funds which may be medium term funds--- they should be going up.

5. Some of the rate sensitive industries may be impacted--Autos, real estate -- so buy them with any short term correction-- their demand will not be impacted too much.

Happy investing.

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