December 11, 2009
Posted by admin
Interest Rate and Investment
Interest rate has a direct correlation to the investment pattern one should choose. In the present scenario, various central banks are reducing the rate of interest to stimulate the economy and consumer spending. The reducing interest rate drives the people to invest in the equity market. This is based on the simple reason that the corporates are able to get the fund at a cheaper rate resulting in the increase of profit margin to give better return to the shareholders. The general public keep away from the fixed deposit schemes of the banks due to the lower return. Thus, it is better for financial experts to invest in equities in a falling interest regime.
On the contrary, falling interest should be taken as an opportunity to go in for investing in the bond market as well. The rate of yield from the bonds and the price of the same is inversely related. When the yield of the bond is less, the Net Asset Value increases resulting in the better return to the investor. The debt instruments like bonds had returned good amount to the investors during falling interest regime for a temporary period. Hence, the investors should watch the movement in the interest rate and decide their investment pattern to maximize the return.
No Comments Yet
You can be the first to comment!
Leave a comment