S&P BSE Sensex*	Re/US $	Gold Rs/10g	Crude ($/barrel)	FD Rates (1-Yr)
33,462.97 |212.67 0.64%	64.35 |0.20 0.31%	28,610 | -150.00 -0.52%	63.31 |1.41 2.28%	5.00% - 6.75%

There’s a Tug-of-war for consensus, among bankers , on the outlook for interest rates and credit offtake.

While Public Sector Banks (PSBs) such as State Bank of India (SBI) and Punjab National Bank (PNB) have been increasing the interest rates on deposits, private sector bankers, ICICI Bank, HDFC Bank have been slashing the rates.

Apparently, the three reasons for such rate cuts are…

1. Surplus liquidity:
   
   Post demonetisation, cash in the form of black wealth and the surplus legitimate money sitting idle in home vaults, found the way to banks. This elevated the chronic insufficiency of deposits; and naturally, the cost of borrowing dropped.
    
2. Tepid demand for credit:
   
   Corporates are apprehensive about capacity additions, like some small businesses that have become conservative in their borrowings due to the stagnation of revenues. As a result, wholesale lending activities are close to a halt. The Banks’ appetite for Risk has ebbed because of bad asset quality. Private sector banks are more conservative in lending to Micro, Small, and Medium Enterprises (MSMEs).
    
3. Dim prospects of uptick in corporate credit disbursement:
   
   Focusing on retail loans for the last four to five years, Private sector banks want to offset the lull in wholesale-loan book.

Nonetheless, the competition in retail lending has increased, but sustaining the rapid pace of growth is difficult. Following a proactive approach, private sector banks have taken corrective steps to retain their business margins intact.

Commenting on the Bank’s decision of increasing bulk deposit rates, Mr Praveen Kumar Gupta, MD, SBI said, "The hike in the bulk deposit rates was only to align it to the market rates. Post demonetisation, the system was flush with liquidity, so we were discouraging it, but now the excess liquidity in the system is less than Rs 1 lakh crore and RBI has said that it will bring the liquidity to neutral by March 2018 so we need to have sufficient liquidity."

On the condition of anonymity, a private banker said, "Home loans and car loans are not enough to pull up the credit growth of banks. We need large capex demand to come so there is a shift back from the investment to the core credit activity. But even brown field expansion demand not visible."

These are interesting developments, considering the dynamic macro-economic landscape. Interest rates in the U.S. are rising consistently and keeping the treasury yields buoyant. In other words, the U.S. bonds and treasuries have become attractive to global investors.

Therefore, unless emerging countries like India offer competitive interest rates, attracting foreign capital will now be a challenge. With the dual impact of rising food prices and implementation of the Seventh Pay Commission, inflation is expected to remain in the range of 4.3% to 4.7% in the second-half FY 2017-18,  i.e. between October 2017 and March 2018. In the first-half of the FY 2017-18, i.e. between April 2017 and September 2017; the retail inflation averaged below 3.0%.

Thus, it is unlikely to breach the RBI’s medium term target of 4.0% on full-year basis. However, the fiscal deficit has hit 96% of the ceiling placed for the full-year, i.e. for FY 2017-18, in the first seven months.

As the Government remains stoic about fiscal discipline, RBI is unlikely to reduce policy rates in FY 2018-19.

Sooner or later, the unprecedented fall in the interest rates on deposits that started post demonetisation would end. Private sector banks may find it difficult to raise inflow to deposits at lower interest rates.

During such times, selecting the category of debt mutual funds first becomes crucial. 

The current macro-environment is non-conducive for lower yields. The Indian debt market’s sentiments are hurt because the path to fiscal consolidation could be disrupted (owing to mammoth expenditure by Government). Especially when growth is flagging, and Current Account Deficit on rising imports is widening yet again. Hence, 10-year benchmark yields have stagnated. A rating upgrade by Moody’s helped cool-off yields a bit; but this was short-lived.

PersonalFN is of the view that, investing aggressively at the longer end of the yield curve could prove imprudent.

To put it simply, investing in long-term debt funds (holding longer maturity debt papers) is risky, since most of the rally has been captured already at the longer end of the yield curve.

In fact, short-term maturity papers are turning attractive and fund houses are aligning their portfolios. Yet, if you wish to take the risk (hoping a rate cut in time to come), invest through dynamically managed bond funds if your investment time horizon is two-three years.

Ideally, deploy your hard-earned money in short-term debt funds; but ensure to give due importance to your investment time horizon, asset allocation and diversification.

Consider investing in short-term debt funds for an investment horizon of upto two years.
If you have an investment horizon of three to six months, ultra-short term funds (also known as liquid plus funds) would be the most suitable.

And, if you have an extreme short-term time horizon (of less than 3 months), you would be better-off investing in liquid funds.

Don’t forget that investing in debt funds is not risk-free. Therefore consider the 5-facets while investing in debt funds.

Some other options to invest in debt instruments are tax-free bonds, especially if you are in the highest tax bracket.

A few highly rated corporate deposits and bonds could yield better returns than bank FDs. Look at the company’s financials before investing. This will stave off financial shocks.

Sensible and astute investment strategy serves the path to wealth creation and is always good for your long-term financial wellbeing.

You should stick to mutual fund schemes that have a proven track record across timeframes and market phases.

If you need research-backed recommendations to select the best mutual fund schemes for your portfolio, you can access 7 high-performing, time-tested readymade portfolios with a decade-long market-beating track record. PersonalFN’s model mutual fund portfolio service ‘FundSelect Plus’ has completed a decade and we are offering subscriptions at a massive 75% discount!  

PersonalFN’s track record speaks for itself, as all three portfolios have comfortably achieved higher than their respective benchmarks. Subscribe now!

Need A Loan? Watch Out What You Post On Social Media

Banks are improving their technology stack; that’s the good news

And those improvements are unleashing the intrusion on your privacy — loathsome.

Do you know, when you download an App of a bank you do business with, it asks you to grant endless permissions.

Now, although the primary intent of seeking permissions is to facilitate the smooth functioning of the App, banks—App providers often misuse the collected information. For instance, an App may have a permission to read your SMS’, but the main purpose of this is to read the OTP and auto-fill it in without you having to do this exercise manually. And the trouble starts when banks read all your SMS’ in the name of “credit underwriting”. 

Don’t be shocked to read this.

In the absence of strong laws protecting your privacy, banks are leveraging data they collect from you to curtail risk in the loan proposals. But there’s no guarantee, they won’t misuse it. So, perhaps data privacy is a myth.

Also, it seems the role of credit information and rating agencies is diminishing. Hopefully, the RBI is keeping a watch on these developments. More astonishingly, banks and their heads have been vocal about it like never before.

Does that mean, it’s all happening with the implied consent of the regulator? RBI must issue a clarification on this matter.

To read more about this story and Personal FN’s views, please click here.

How To Check Aadhaar Authentication History Online And Prevent Misuse

Last year, you had to stand in long queues to withdraw cash from your bank account. Demonetisation was a dreadful experience for most.

This year, if you don’t link Aadhaar to your bank account or various other financial services, your accounts may be blocked. Another terrifying experience in the making.

Imagine not having access to your bank account or not being able to redeem your mutual fund units or being restricted from buying and selling equity shares. The liabilities can be unimaginable.

Indian citizens are getting frantic as the deadline to link Aadhaar to important documents and services is just around the corner.

While online facilities are available in most, imagine the woes of those who are not very tech savvy such as senior citizens or those who do not have access to the internet. Many cooperative banks, stock broking firms and insurance companies too, do not provide an online facility. Individuals will need to take leave from work to get their Aadhaar linked to these services.

To read more and Personal FN’s views over it, please click here.

Will Cryptocurrencies Go The Dotcom Way? Know Here…  

There was a time when equity in any company suffixed with dotcom sold at jaw-dropping valuations. Venture capitalists, large institutional investors, and even individual investors were betting big on the ‘internet companies’— in search of a next big thing.

Such fads aren’t new to the investors’ fraternity. When coupled with easy money, investment fads can captivate even the most sensible investor and keep them mesmerised until the bubble has cast shadow on their wealth.

Those who bought tech stocks during the dotcom boom burnt their fingers at the turn of the millennium, the dotcom bubble burst and many companies never touched those highs ever again...

Fast forward to 2017…

There’s another bubble in the making.

To read more about this story and Personal FN’s views, please click here.

5 Reasons To Avoid Close-ended Mutual Funds

Mutual Funds love launching close-ended schemes for a variety of reasons. Unfortunately, the reasons may not always be in your best interest.

It is common to see fund houses come out with New Fund Offers (NFOs) when the market is hot. This is the time investors are attracted by the supernormal returns generated by equity mutual funds.

Asset managers strike when the iron is hot and launch new schemes with similar objectives, in order to garner more funds and increase their asset base.

For example, in the balanced fund category, a few fund houses have launched multiple schemes. The mutual fund regulator, the Securities and Exchange Board of India (SEBI), has often chided mutual fund houses for launching open-ended schemes with similar investment objectives. This has led to scheme mergers and reduced frequency of open-ended NFOs.
But, money managers found a way out. They soon began to launch close-ended funds. Here there is no restriction on overlapping investment objectives and the money is locked-in for 3-5 years, depending on the maturity period of the scheme. Being new funds with a small asset base, the expense ratio too is higher than most established open-ended funds.

To read more and Personal FN’s views, please click here.

Have you linked Aadhaar to PAN, all your bank accounts, insurance policies, mutual fund folios, demat accounts, and mobile phone connections? If not, then, you need not rush to complete the task immediately. The Supreme Court has pushed back the deadline to link Aadhaar with important services to March 31, 2018.

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Expansionary Policy: An expansionary policy is a macroeconomic policy that seeks to expand the money supply to encourage economic growth or combat inflationary price increases. One form of expansionary policy is fiscal policy, which comes in the form of tax cuts, transfer payments, rebates and increased government spending. Another form is monetary policy, which is enacted by central banks and comes about through open market operations, reserve requirements and interest rates.

Quote: “The investor’s chief problem and even his worst enemy is likely to be himself.” -Benjamin Graham