After every 2 months RBI (Reserve Bank Of India) has its monetary policy. In the monetary policy the RBI decides to either retain or cut the repo and reverse repo rates for the banks, depending on various factors like inflation, credit scenarios, liquidity etc.When the RBI cuts the repo rates, the banks also sub-sequently cuts their interest rates of loans (like home loan, personal loan, education loan, vehicle loans etc) thus they become cheaper to avail for the general public. Hence it sort of boosts the economy.
But to stay in business, banks also cut the interest rates of fixed deposits and saving accounts. Interest rates on saving and FD's has fallen from 12% per annum to 7.25% per annum on an average.
Today if you think depositing your funds in FD's, the post tax and inflation adjusted returns are nothing but peanuts. Various debt funds prove to be effective asset class in this scenario. They have out performed FD as asset class by giving 8.50% to as high as 12% per annum.
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