Average market interest rates for short-term fixed income investments are; 1 month- 10%, 3 months- 12.5%, 6 months- 11%, 9 months - 11.5%, 12 months- 10%.
Since market interest rates are on a downward
trend, we can expect rates to come down gradually in the next 6 months. According
to the FRA calculation, my recommendation is as follows.
3X6 is 9.19%. To better off the option of
investing for 6 months straight you should be able to get more than 9.19% for a
3 months investment after another 3 months and, likely, rates will not come
down by 340 basis points after 3 months. Hence the option of investing for 3
months & renewing it for another 3 months is a better option if you are
looking for a return on your investment for 6 months.
3X12 is 8.88%. To better off the option of
investing for 12 months straight you should be able to get more than 8.88% for
a 9 months investment after another 3 months and there is a possibility of
rates to come down by 260 basis points for 9 months investment after 3 months.
Hence option of investing for 12 months straight is better than the option of investing
for 3 months & renewing it for another 9 months.
1X3 is 13.65%. To better off the option of
investing for 3 months straight you should be able to get more than 13.65% for
a 2 months investment after 1 month and it is highly unlikely that rates will
go up by 365 basis points. Hence investing for 3 months straight is a better
option.
According to my prediction if you can
invest only for 3 months investing for 3 months straight @12.5% is a better
option.
If you can invest for 6 months, invest for
3 months @ 12.5% & renew it for another 3 months @ the prevailing rate is a
better option.
If you can invest for 12 months, investing
for 12 months @ anything more than 10% is a better option.
