Changing money habits

These are tumultuous times, where no one is sure about which way the global economy or the capital markets are going. In such scenario there could be many changes in the way the countries try to tackle the slowdown & recession. So it makes doubly important to keep track of the changes in the policies & adjust your money position accordingly. Here are few changes that took place which could make you change your positions.

The biggest indicator that could signal a bull-run is falling bond yields, which clearly explains the current upsurge in the capital markets. So if you are holding positions in cash or debt, a little portion (@ 10% of your holdings) at this point can be transferred to equity with a long to very long term view. Especially if any of your Fixed Deposits in banks are maturing at this point, you can see that you are not getting as high interest rates on them as you might last year. All the Central banks are pushing the interest rates downwards in order to boost the economy according to Keynesian theory. The sectors that you can look at are Banking & Capital goods, which have been battered badly in the current fall & seem to have considerable upside once the bull-run gathers momentum. Equity diversified Mutual Funds can also be a good option.

There is a clear disincentive in pledging new money to Bank FDs. The Rates offered by banks on deposits may go even more south because of new directive given by RBI on the interest calculations on the savings accounts. Currently the interest on savings accounts is offered on the lowest balance of the account between 10^th & 30^th of the month. This system will be abolished beginning from April 2010 & the banks have to offer interest on everyday closing balance. This changes the Asset Liability Management of banks a lot. The interest outgo to savings accounts will be lot more than current year, so to reduce total outgo they will have to pull down the interest offered on Deposits right from this year to maintain their interest margins consistent. Given the benefit of liquidity Savings accounts could be a better bet to Fixed Deposits. This also works well with current inflation level.

If you are planning to buy your first home & you are well assured of your jobs, you can go in for current Real Estate & Home Loans rates. Do verify the fall in prices in the area you are interested in, if there has not been much correction in prices, you might want to wait for some time as on an average the real estate rates have corrected by at least 30% throughout the country. My suggestion is to go for fixed rate with reset clause after tenure of 60 months (@9.25%) instead of floating as there could be good amount of volatility in the interest rates in coming 5 years & upside risk is high on floating rates.

In all these changes do not forget the basics of liquidity. You need to have fair amount of cash to manage your day to day needs & EMIs, in case unforeseen circumstances force you into joblessness.