I was reading this article at Bloomberg and it made me think that how much is the lack of a well developed Bond Market hurting we commoners.
Although some of our money is invested in risky financial instruments like Stocks and Mutual Funds, the bulk of our funds are usually parked in fixed return instruments like Fixed Deposits, NSC, ppf etc. Now although it always feels good to have as much wealth as possible, what good is the money if it is not there when you need it.
It is then when we realize that how the government and the banks exploit lack of market tradeable bonds for their own selfish needs. Money parked in NSC is locked for 6 years and no matter what one does, we cannot get a penny out of it. The only way one can take money out of a LIC policy or ppf is by taking a loan… So effectively I pay interest to LIC for my own money??????
In eras of fluctuating interest rates, banks should be grateful that somebody is prematuring closing a fixed deposit.
eg: I had a 6 month old fixed deposit which gave me 9.5% rate of interest. Since current rate is 8.5%, by closing this FD, I effectively save the bank 1% p.a. on interest alone. However instead of being happy about it, the bank coolly deducted half of the interest which I had already earned as preclosure penalty.
Had I had invested in bond market, I could have easily gone and encashed these bonds at NSE/BSE and even made a handsome profit because these high interest bearing deposits are worth a lot more than what bank gives me credit for.
5 replies on “Bond Market”
I am not sure whether we can transfer fixed deposits or not. If it is allowed, then transferring is much better option than closing the account. I think post-office has the option of transferring their fixed/recurring deposits. There are many brokers out there who does all this stuff.
the govt finds it conv to tax bakras such as middle class pple and securities mkts so as to ruin them
plus it might have vested interests what with all investors like u n me getting financially active and not feeding money to their psu banks
till date i have never heard of any such scheme.. although informally people do take overdrafts or pledge FD to their family members.. but do let me know if there is an institutionalized process for doing it…
after all more than 1/2 of my portfolio is always in the FD or money instruments (primarily to reduce my risks.. and save for the rainy day)
banks have a spread of almost 3% and if you also take into account the money we keep in teh savings account (1 keep more than 1.5 L at any given time in my savings account and it earns me a tiny interest of 3.5%) then our deposits are making more money for the bank than they make for me.
and this is probably the reason why govt does not want the bond market to develop
I talked to an agent for post-office deposits. He told me that, we can officially transfer Fixed Deposits, and Recurring Deposits to some one else.
thanks 🙂 that will definitely save me a lot of trouble and expenses