To earn higher interest income, you have to take some measured risks

Interest rates in India are on the upswing. The benchmark 10-year G-Sec bond yield is up around 81 basis points over the past year. Currently, it stands at 7.77 per cent. And, there are expectations that yields would harden further in the second half of the year because the central government’s borrowing programme has been pushed back. As a result, borrowing will be higher in the second half of the year. State governments, too, are also likely to borrow heavily. Given that 2019 general elections are fast approaching, there could also be some surprise expenses from the government.

For fixed-income investors, this is undoubtedly good news, as interest rates will go up. In fact, they already are. Banks like State Bank of India, ICICI Bank, HDFC Bank and others are slowing raising deposit rates. But, instead of just looking at fixed deposits from banks or non-banking financial companies, investors could earn higher interest income from other instruments, such as non-convertible debentures, fixed maturity plans and such.

For starters, if you want to wait and lock yourself into higher rates in the future, the strategy should be to be in shorter-term deposits or funds. Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors, says: “If you decide to invest in fixed deposits, go for a tenure of six to nine months. This will allow you to move to deposits offering higher interest rates if rates continue to rise in the near future.” Deepesh Raghaw, founder, PersonalFinancePlan.in, adds: “At this point in time, however, investors should stick largely to shorter-duration debt funds that are not subject to duration risk.” However, if you want to invest now, there are some options.