PPF rates slashed? ways out of the crunch

The PPF rates have been slashed by .6%, much to the horror of the working class. And the noose tightens even more around the senior citizens and private sector retirees who depend solely on the small saving interests for survival. Adding to the hard times is the fact that the commodity prices are soaring.

Had PPF been the sole detractor, there were other schemes to bank upon-NSE bonds. However, the RBI has left us no way to exit the cringing market.

Silver lining to the dark clouds

According to an Economic Times report of Oct 2015, Home loan interest rates will come down, slashing borrowing costs. Add to it the advantages earned by the women beneficieries who get further reduction on interest rates in many banks. Hence, the EMI of a home loan of Rs 60 lakhs for 20 years will come down by over Rs 1500. So, strike the iron when its hot!

Apart from that investors in debt funds and tax-free bonds are also happy because they have made big gains. Corporates are happy because their cost of capital comes down and stock investors see this as a positive development.

Predicting the future of small saving in the year 2016-2017 is Sahil Kapoor, Chief Market Strategist, Edelweiss Financial Services. " The RBI's acknowledgement that the disinflationary trend in prices is here to stay indicates that further monetary policy easing is likely," he said.

[Read: Interest rates on PPF, Kisan Vikas Patra reduced]

Arun Gopalan, Vice-President - Research, Systematix Shares & Stocks said,"Taken together with lower than expected inflation for January 2016 at 5.8% and January 2017 at 4.8% and given the RBI real interest comfort level of 1.5%, there is enough headroom for a further 50 bps cut in 2016-17."

Precisely why experts believe that it is best to invest in long-term bond funds. It is said that The best performing long-term debt funds have delivered up to 17% (see graphic) in the past one year but they feel there is still a lot of steam left in this category. "There is no better time to invest in duration funds. Yields will keep inching southward for some time," says Sujoy Das, Head of Fixed Income, Religare Invesco Mutual Fund."

Best places to invest

Tax-free bonds, Corporate deposits are some of the other options that one can look into apart from investing in housing loans. The interest rates on tax-free bonds was fixed before rate cut. For a retail investor in the highest 30.9% tax bracket, the pretax yield works out to 11%. In fact, tax-free bonds issued in the past two years are still offering a pre-tax yield higher than what bank deposits give in the highest 30.9% tax bracket.

Though banks have cut their deposit rates, the interest rates offered on corporate deposits are still buoyant. Bank FDs offer 7-7.5% but some AAA-rated corporate FDs are offering 9-9.25%.

So gear up investors and get started!