Lock in to FDs now or find other alternatives quickly

The higher than expected 50bps repo rate cut by the RBI will make banks re-price their deposit rates downward. The reason is that borrowing costs for banks in the overnight markets will be 50bps lower at around 8%, which is the repo rate and RBI has given banks leeway to access the MSF (Marginal Standing Facility) at 9% by letting them go below 2% of their SLR (Statutory Liquidity Ratio) limit.

Banks have to hold 24% of their deposits (NDTL or Net Demand and Time Liabilities) in government bonds as SLR. The banking system deposit base is around Rs 60 lakh crores. Banks are holding around 29% of their deposits in government bonds. Hence banks can technically borrowing 5% (the excess SLR) of Rs 60 lakh crores, which works out to around Rs 300,000 crores from the RBI at the repo rate of 8%. Banks can also borrow 2% of Rs 60 lakh crores, which works out Rs 1.2 lakh crores through the MSF window at 9%. Banks will not be worried about liquidity given the Rs 4.2 lakh crores leeway offered to them by RBI at 50bps lower rate of interest post the repo rate cut.

The easing policy signal given by the RBI through the repo rate cut coupled with access to liquidity will make banks lower their deposit rates. Banks by lowering deposit rates and keeping loan rates steady will increase their NIMs (Net Interest Margins). Higher NIM's will lead to higher profits for banks, which comes at the cost of lower rates of interest for depositors.

Fixed deposit (FD) investors should quickly lock on to FD rates before they are brought down. Investors should also increase the tenure of their FD's as they can then earn higher interest rates for a longer period of time.

FD investors should also look for alternative fixed income investments to counter the expected fall in deposit rates. Alternative investments include investing directly in fixed income securities issued by banks, Corporates and the Government of India or indirectly through fixed income mutual fund schemes.

The current yields on one year, two year, five year and ten year maturity AAA rated corporate bonds are 9.6%, 9.3%, 9.35% and 9.4% respectively and the yields are likely to come down on the back of easing policy rates and easing liquidity conditions. Fall in yields will also give capital gain benefits to investors leading to higher returns from investments in fixed income securities.

Government bond yields in the one year, two year, five year and ten year maturity segments are trading at levels of  8.3%, 8.3%, 8.35% and 8.4% respectively. The high borrowing program of the government will keep yields steady despite rate cuts, but yields will start trending down going forward leading to capital gains for investors.

Investors who cannot access the corporate bond and government securities market (Indian fixed income markets are not conducive for direct retail participation) should invest in mutual fund schemes that invest in fixed income securities. Investors looking to benefit from fall in corporate bond yields should invest in short term and long term income funds while investors looking to benefit from fall in government bond yields should invest in long term gilt funds.

Expected one year returns to investors if yields fall by 50bps in corporate bonds and government bonds will be around 9.5% post expenses in short term funds and around 11.5% in income funds. Government bond funds will generate around 11.5% as maturities in government bond funds are generally higher than income funds.

Source: http://www.moneycontrol.com/news/fixed-income-bank-deposits/lockto-fds-now-or-find-other-alternatives-quickly_694312.html

First case of conversion of Gold ETF units to physical Gold in 10 gms!

Mr. Ashok Dhamnaskar, an investor from Mumbai has become India`s First Investor to convert ETF units to physical gold. On Thursday April 12, 2012, Mr. Dhamnaskar redeemed his Motilal Oswal MOSt Shares Gold ETF units to get physical gold.

With Mr. Nitin Rakesh, MD & CEO, Motilal Oswal AMC and his team were present to facilitate the redemption process. Overwhelmed Mr. Dhamnaskar said, ?I was looking for the avenue to buy gold at a cheaper price yet with the best of quality for my son`s wedding. But I found it difficult to get both at the same time. I had to pay premium for pure gold or compromise on the gold quality for cheaper price. That`s when my broker invited me to a seminar organized by Motilal Oswal Mutual Fund, where I was introduced to MOSt Gold Shares, which offered quality gold at a better rate than Banks and Jewellers?. Talking about buying MOSt Gold Shares ETF`s units, Mr. Dhamnaskar said, ?It was as easy as buying gold from any other available avenue, as I used a smarter way to buy gold!"

Mr. Nitin Rakesh, while handing over the Gold bar, said, "Our primary objective for designing MOSt Gold Shares was to offer best of both worlds - investment and consumption; and with investors like Mr. Ashok Dhamnaskar, it`s been effectively achieved".

Motilal Oswal MOSt Shares Gold ETF (MOSt Gold Shares) is an open ended exchange traded fund that invests in gold bullion. MOSt Gold Shares is India`s 1st Gold ETF of its kind which seamlessly enables Investment as well as Consumption of Gold for Retail Investors.

With the auspicious occasion of Akshaya Tritiya just around the corner, MOSt Gold Shares offers an excellent opportunity to investors who are looking to buy gold both for investment & consumption. Investors can easily avoid waiting in the queue at banks or the maddening rush at the jewelers on this day. All they need to do is buy units of MOSt Shares Gold ETFs at prices lower than offered by Banks and jewelers and redeem them for pure imported physical gold whenever they want.

MOSt Shares Gold ETF

The NAV of the MOSt Gold Shares unit will track spot price of 1 gm of gold. Valued at spot gold bullion prices, investors can get pure imported Gold at a price lower than banks & jewelers by redeeming the ETF units for physical gold bars in as low as 10 grams across 22 cities in India. It will provide investors a means of participating in the gold bullion market and take physical delivery of gold when needed. MOSt Gold Shares is supported by RiddiSiddhi Bullions Limited (RSBL), as Primary Authorized Participants & Market Makers. RSBL is one of the largest bullion dealers in India.

MOSt Gold Shares is listed on the NSE and BSE. The fund manager of the scheme is Mr. Rajnish Rastogi. The investment objective of the Scheme is to provide return by investing in Gold Bullion.

Source: http://hdfcsec.com/News/NewsDetails.aspx?NewsID=547794&NewsType=M