Just saw this tweet by @nithin and as he rightly mentions T-bill and G-sec rates are nearly 1.5-2% up and that’s sizable considering the fact that all these are < 12 months in terms of the tenure and carry the same risk. (basically zero risk)
What is it that attracts people to FDs despite government securities offering much better returns compared to FDs? FDs are already yielding returns which are much lower than inflation and adding tax to that would make the returns even more lower. That’s why I feel this 2% extra return matters.
Should the government do more to promote these instruments?
FDs have been here for decades, any person can visit his branch and make an FD, and doing this online literally take seconds. You don’t need any other account like demat to make a FD. Withdrawal even prematurely is also easy. A pretty simple product in every sense.
Cant say all of these are true for FD, and of course people who invest in debt funds are indirectly investing in these, as almost all funds buy some portion of Gsecs.
Also, I think in principle and in practice, PSU FDs give more than Gsecs, private bank FDs more than PSU FDs, and debt funds a bit more than all of these. And PSU FDs have been rising, so will others.
You are right. It is an approximate return that you will be getting based on LTP (it is given for comparison purpose). The actual yield of the security depends on the weighted average price discovered in the auction.
The comparison is between apples and oranges. Folks who are saying their banks offer better rates are completely disregarding a major USP of the TBills, its 100% safe. Unless we are in a SriLanka like situation, the government will always pay to its creditors the amount it owes them.
The same cant be said for any small finance banks and even a few large banks are susceptible to the risks.
Also, the rates TBills are offering are for <1 year period, in my understanding, any bank offering ~7% is also locking in your money for >1, in some cases 2 years.
Each depositor is insured by the Deposit Insurance and Credit Guarantee Corporation(DICGC) upto the maximum of Rs. 5 Lakh, for both principal and interest amount held by him in the same right and same capacity.
Copied and pasted.
So if the FDs are more than 5 lacs, for the remaining amount, we have to wait till the problem gets sorted out. Not the case with Gsecs. Hence the concept of ‘too big to fail’ banks, where we can make FDs, SBI, HDFC and ICICI.
These are relatively risky choices, compared to established bigger banks.