Imagine how much you could have earned if only you bought onions in time. About a year ago you could have easily picked up onion from the neighbourhood market at Rs 15 a kg.A year later your profit would have been 200 per cent. Or take for that matter mustard oil. Packets which you bought at Rs 55 a kg only a couple of months ago may fetch you Rs 85 upwards. The return on such an investment works out to over 300 per cent annually.Unfortunately we have no crystal ball to help us see the future. Thus onions and mustard oils are ruled out. What makes more sense is to look for safe financial instruments for investing. But the picture may be confusing there too.Mutual funds have not fared well during the past couple of years. Many of these are now fetching less than the face value. Even the safest bet, US 64, has become risky after the exposure that it was paying "dividend" out of new deposits. Even funds managed by 1997 Nobel laureates have fared disastrously. So how can we pull up our home-grown experts when times are bad?Which are the options that we still have? The time-tested one of putting money in a bank fixed deposit. But are banks safe? We read about banks abroad having lost money and that they find it difficult to return funds to depositors..preferred-source-banner{ margin-top: 10px; margin-bottom:10px;}True, but there hasn't been any bank collapsing in recent memory. Most banks in India are owned by the government. Even most of the new private sector banks are owned by some government-controlled institution. So we need not panic.But for what duration should we keep the funds? Interest rates also keep changing quite frequently nowadays. The Reserve Bank of India (RBI) will announce its credit policy at the end of the month. Interest rates may come down then. RBI is keen to revive the economy which has been suffering from lack of demand for quite some time.One sure way of increasing demand is to reduce the cost of borrowing money. That is to cut interest rates. To be on the safe side, should you put your money in a bank fixed deposit now to reap the benefit of an interest rate which is higher than in the future?Perhaps one may take chances here. Interest rates are linked to the rate of inflation in an economy. And the current rate of wholesale price rise - a little over 8 per cent - doesn't give enough hope of the rate coming down. So RBI cannot bring down interest rate much - may be by a half per cent or a 1 per cent. Banks will follow the hint. But chances are they will fiddle with interest rates of shorter maturities - for fixed deposits up to one year.You will have the sweet pleasure of beating the market by correctly forecasting events should you keep funds in one-year fixed deposits in banks. You will earn about 10.5 to 11 per cent depending on the bank you find convenient. You will also just beat the inflation - that is earn enough to buy the same quantity of onion, if not more, with the money stashed away now. What is more important, your money will remain liquid at the same time.That is you will not find it locked away in some bankrupt company or in some property which is not fetching even three-quarters the price at which you bought. Plus you have the added advantage of investing it in stocks for higher returns after the bad days are over and the wheels of the economy begin to spin again.(The author is executive in an Indian leasing and financial services company)Beginning this week, there will be a regular page on personal finance.Published By: AtMigration Published On: Nov 2, 1998--- ENDS ---
