This can happen only when banks reduce the rates

In the last quarter of 2015, banks have already started paring down interest rates by a half or one per cent on fixed deposits..The real rate of returnInvestors wary of falling interest rates on bonds and FDs must remember that absolute rate of return does not give the right picture.2 per cent for a taxpayer in the 30 per cent tax bracket. This can happen only when banks reduce the rates on fixed deposits. In times of falling interest rates, these funds can generate http://www.hzjuli.net/product/aluminum/bondable-aluminnum-tape/ double-digit returns. Long-tenure income funds and gilt funds are examples of long-duration bonds. This holds true despite the fact that the coupons on tax-free bonds are lower than the yields on government bonds of similar maturities. A bank FD with 5-10 year maturity is available at 7.7 per cent to 8 per cent, the effective return would be much higher because not only is investment in PPF eligible for income tax deduction, but also, the interest earned is tax-free.Tax-free bondsThe interest earned on these bonds is tax-free and therefore, they are attractive investment options for individuals in the higher tax bracket.Even if the interest on PPF is reduced from the current 8. A year ago, an FD with one-five year maturity period used to yield an annual interest of 8-8. This is a much better than a scenario where an FD is earning 10 per cent interest and inflation is 11 per cent, which gives you a negative real rate of return of one per cent. However, after taxes, it would be lower than that of tax-free bonds. The post tax-return from an FD earning 7.With over 125 basis points cut in the repo rate in 2015, some banks have already cut rates but they are under pressure to reduce them further. This is a higher-risk strategy, as long duration funds are more responsive to interest rate changes.The yield on 10-year government bond is around 7.5 per cent annual return is 6.High yield accrual fundsIf your concern is falling interest rates in future, lock some of your investments in the few high-yield opportunities still available in the market through accrual funds.Debt mutual fundsMutual funds offer a variety of options that help investors benefit from the future rate cuts as well as from existing high yield opportunities. Typically, these are short-term bond funds.2 per cent for one in the 10 per cent tax bracket. They should always look at the real rate of return to know if their investments are growing or not.Public Provident FundDespite the likely cut in interest rates of small savings schemes, PPF would continue to be one of the most tax-efficient investment options.