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| Scheme Name | 1-Year Return | Invest Now | Fund Category | Expense Ratio |
|---|---|---|---|---|
| Axis Nifty 50 Index Fund | +32.80% | Invest Now | Equity: Large Cap | 0.12% |
| Axis Nifty 100 Index Fund | +38.59% | Invest Now | Equity: Large Cap | 0.21% |
| Axis Nifty Next 50 Index Fund | +71.83% | Invest Now | Equity: Large Cap | 0.25% |
| Axis Nifty 500 Index Fund | — | Invest Now | Equity: Flexi Cap | 0.10% |
| Axis Nifty Midcap 50 Index Fund | +46.03% | Invest Now | Equity: Mid Cap | 0.28% |
Viral Bhatt, Founder of Money Mantra, explains the dilemma of borrowers well:
“Imagine two friends, Priya and Rohit, planning a road trip. Priya rents a car with a fixed rate of ₹10 per kilometer, while Rohit opts for a rental where the rate depends on fuel prices—sometimes it’s ₹8, sometimes ₹12. Who made the better choice? That depends on the journey ahead,” Bhatt says.
Similarly, when it comes to loans, borrowers must weigh the pros and cons of fixed and floating interest rates, as each option presents different advantages and risks.
Pros of fixed interest rate
- Fixed interest rates offer stability. Once the loan is approved, the interest rate remains constant throughout the loan tenure, regardless of fluctuations in the market.
- This predictability allows borrowers to plan their monthly repayments and budget accordingly.
Cons of fixed interest rate
- Fixed-rate loans tend to come with higher interest rates compared to floating-rate loans, which can be a disadvantage in a falling interest rate environment.
- Prepayment penalties often apply on fixed-rate loans, further increasing the cost of the loan.
Pros of floating interest rate
- Floating interest rates are tied to the benchmark rates of financial institutions, which fluctuate based on market conditions.
- These rates are typically lower than fixed rates, making them attractive to borrowers in the short term.
- As market interest rates rise or fall, the loan’s interest rate adjusts accordingly, potentially altering the loan’s tenure or EMI amount.
Cons of floating interest rate
- While floating rates can result in savings if rates decrease, they also carry the risk of increasing costs if rates rise.
- The lack of predictability in floating rates makes budgeting more challenging, and borrowers may face higher repayments if market conditions shift unfavourably.
What should borrowers choose?
Money Mantra’s Viral Bhatt compares choosing between fixed and floating interest rates with road-trip planning. According to him, for investors who can foresee a “smooth ride” with consistent conditions, a fixed rate is their best bet. However, if they’re open to adapting to the twists and turns of the market, a floating rate might be more advantageous.
“Let’s return to Priya and Rohit. Priya might appreciate her fixed-rate car rental if fuel prices soared during the trip. On the other hand, Rohit would have saved money if fuel prices dropped. Similarly, if market interest rates increase, borrowers with fixed rates benefit by paying less than those with floating rates. However, if rates fall, floating-rate borrowers enjoy reduced EMIs while fixed-rate borrowers miss out on savings,” Bhatt adds.
Before making a decision, evaluate your financial stability, risk appetite, and expectations of future interest rate movements. Just like Priya and Rohit’s road trip, understanding your financial journey ensures that you make the best choice to achieve your goals.
Also Read: Term insurance vs endowment plans: How are they different?
