Prime Rate or Prime Lending Rates (PLR)

Prime rate or Prime lending rates (PLR) refer to interest rates charged by commercial banks for their most credit-worthy customers. Generally credit-worthy customers consist of large corporations.

The rate is a key interest rate, since loans to less-creditworthy customers are often tied to a high interest rate. For example, a “Company A ” (most credit-worthy customer) may borrow at a prime rate of 5%, but a less-well-established “Company B” may borrow from the same bank at prime plus 1, or 6%.

Bank’s good standing customers have little chance of defaulting than customer who has a higher risk of defaulting, so the bank can charge them a rate that is lower than the rate that would be charged to other customers.

100 basis points is one percentage point(1 % ).

A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security.

For example, if the Bank raises interest rates by 50 basis points, it means that rates have risen by 0.50% percentage points. If rates were at 2.50%, and the Fed raised them by 0.50%, or 50 basis points, the new interest rate would be 3.0%.

[Source: Investopedia ]

RBI unexpectedly raised interest rates for the first time in 15 months.

As part of its on-going effort to contain rising inflation, The Reserve Bank of India has decided to increase the repo rate by 25 basis points to 8.00 percent from 7.75 percent with immediate effect.

The repo rate is the rate at which RBI lends money to banks under its liquidity adjustment facility.

A Money market fund, also known as principal stability funds, is a type of mutual fund that is required by law to invest in low-risk securities. These funds have relatively low risks compared to other mutual funds and pay dividends that generally reflect short-term interest rates.

Money market funds generally invest in

• Government securities
• Certificates of deposits
• Commercial paper of companies
• other highly liquid and low-risk securities.

Money market funds are generally the safest and most secure of mutual fund investments.