MONEY MATTERS

Recession period is the best of times to sow the seeds of investment. The investment can be made in fixed-income investment or in equity shares.

Fixed-income assets

The interest rates on FDs has been increased from up to 7% last year to as much as 11%. If you take long-term deposits now at today’s rates and lock them in, you get the same returns long after the recession ends and interest rates go down again. If you have an old bank FD that’s fetching only about 7%, talk to the manager about closing it and starting afresh at a higher rate. Many banks do that today with no penalty.

While rock solid state owned banks offer you 11%, many private companies and financial institutions will try to lure you by offering you much higher interest rates. Don’t be lured by higher interest rates, because the risk of losing your capital also increases substantially.

Income funds

These are mutual funds that invest in medium – to long-term fixed income securities like government bonds and debentures. This is a very good time to invest in income funds because interest rates are high. As interest rates come down, the value of the bonds and other papers that back these funds shoots up. That means capital appreciation and higher returns for investors. This happened as the last recession drew to a close in 2003, and this will happen again.

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