The Hindu Business Line : With higher interest rates, banks ask FD investors to look at SIPs

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With higher interest rates, banks ask FD investors to look at SIPs

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Move to help boost their fee-based income

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Kolkata Feb. 9 The increase in bank deposit rates may become a blessing for mutual funds. Bankers are increasingly looking at combining systematic investment plans (SIPs) of funds and fixed deposits bearing higher rates of interest. With deposit rates going up, banks that are looking at boosting their fee-based income have stepped up efforts to tap FD seekers by drawing their attention to SIPs.

A typical situation that has evolved is this: A bank approaches a customer who wants in his portfolio large FDs. It advises him that the higher interest that the FDs will now provide should be invested routinely in at least one fund.

The customer, ready to buy the bank's logic at least partially, signs up. In the process, a special investment product gets structured for him.

Fund Houses

Fund circles, which see the obvious advantages of such a structure in an era where interest rates are progressively rising, welcome the trend, especially because this will lead to the creation of more SIPs. Mr A.P. Kurian, Chairman of AMFI, the body representing asset management companies, says fund houses are only too aware of the changing interest rates scenario.

The recent revision in rates is compelling enough for some sections of investors, particularly the ones who wish to explore relatively risk-free options, he adds.

The argument that has been put forward can be seen in the backdrop of the plans worked out by the likes of ABN AMRO Bank. The latter has lately bundled its (400-days) FD, which carry 8.5 per cent per annum, with systematic investment, thanks to what has been branded as the `maximiser option'. This will be true for NRI clients.

Bigger Earning

A client who chooses this option needs to put in a minimum amount — Rs 75,000 in this case — in order to secure an SIP in a mutual fund.

A 8.5 per cent deal, therefore, has the potential to become a bigger earning proposition for the client. Of course, there is no guarantee that the proposition will actually produce the most ideal results for the investor concerned.

The bank has referred to the standard claim, pointing out that the allocation to the fund will be subject to market risks and that performance achieved in the past may not be achieved in the times ahead. It may be mentioned here that banks are also directing FD clients' attention to FMPs (fixed maturity plans) that fund houses are launching one after the other these days.

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