Mumbai: Falling bank deposit rates should not make you lose heart. Fixed deposits of top-rated companies could be an attractive investment option, especially for those desiring safety and reasonable returns. With the Reserve Bank of India announcing the closure of government bonds that paid 7.75 per cent interest and the country’s largest lender State Bank of India slashing deposit rates, financial planners are advising investors to consider fixed deposits of companies such as HDFC, Bajaj Finance, ICICI Home Finance and Mahindra Finance.
Investors in a corporate deposit can earn as much as 200-240 basis points higher than deposit with a nationalised bank like SBI. While an SBI deposit pays a maximum of 5.4 per cent, a deposit in Mahindra Finance pays 7.8 per cent for 40 months. Bajaj Finance offers 7.6 per cent for a five-year deposit. Investors can opt to receive interest payment on a monthly, quarterly or annual basis, and many retirees often use such products to meet their monthly expenses.
“Uncertainty in stock markets, negative environment around debt mutual funds and no fresh issuance of NCDs is turning investors towards corporate fixed deposits,” said Anup Bhaiya, CEO, Money Honey Financial, a Mumbai-based distributor.
Investors prefer these companies because of their stable track record, strong parentage and top-notch ratings. While there is a preference for safety over higher returns, investors deem the current rates offered by banks to be unviable. The government bonds offered post-tax returns of 4.4 per cent annually for a person in the highest tax bracket. Though returns were not considered high, individuals preferred them for their safety. The highest interest rate offered by SBI is 5.4 per cent after the 40-basis point cut.
“Investors are looking to lock money at higher rates in these corporate deposits as they believe rates will go down further,” said Rupesh Bhansali, head (distribution), GEPL Capital.
Many senior citizens prefer corporate deposits over debt mutual funds as these are simple to understand, with defined rate of interest. The scrapping of six schemes by Franklin Templeton that has led to redemptions being stopped indefinitely has contributed to the aversion to debt funds. Returns after tax deductions in these fixed deposits work well for those whose income are not subject to tax or for people in the marginal tax bracket.
Financial planners point out that investments in company FDs should be done after planning for emergency funds. “Build your contingency fund first through bank deposits and after that is done, opt for such deposits. Since they are illiquid, investment must be made with a view of holding till maturity,” says Vinayak Kulkarni, a Mumbai-based financial adviser.