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.