Tag: Investing

17 Nov 2013
There’s much more to safe investing than Bank Fixed Deposits

There’s much more to safe investing than Bank Fixed Deposits

Fixed deposits, as investment products, appeal to retail investors in India primarily for two reasons: the term of investment is fixed so that he knows that the money will come back to him after the chosen term, and the interest rates are known in advance, giving a sense of security to such an investor. In India, banks are primarily associated with fixed deposit products. By virtue of having the trust of their customers – as also the custody of their money – investors usually resort to banks for the same. However, corporate FDs, offered by reputed companies, are a very important investment choice which should not be missed. These are the companies that are involved in numerous businesses and are in a need of capital to run those businesses. Usually, the interest rate offered by corporate fixed deposits is higher than those offered by banks; and hence savvy investors often choose to include corporate FDs in their deposits portfolio.

Why corporate deposits?

Tax and inflation are the biggest bug-bears that an investor of fixed income instruments needs to take care of. While taxation can be helped only to a limited extent, investors should arrive at a prudent mix of safety and returns so that inflation does not turn your FD interest into a negative preposition. Eg, even if we ignore the tax part, in the current era of almost double digit inflation, getting a FD interest of anything less than 9.5% per annum is actually eroding the value of your money. If an investor is astute enough, he/she will always be able to figure that the company fixed deposits give an interest rate that is closer to the current rate of inflation at any given point in time when compared to a similar bank fixed deposit product. However, as is the case with all things in life, moderation is the key. Company deposits give a slightly higher interest rate because of the associated higher risk. While deciding on an investment, the credit risk associated with a company fixed deposit must be factored in.

Some simple rules:

  1. Diversify your investments – Segregate your deposit portfolio into at least two baskets of bank FD and corporate FD.
  2. Choose the Corporates wisely – Check the company ratings before investing, and preferably opt for companies from a larger group, so that the risk is mitigated. In general, go in for companies with ratings of AA and above (FAA / MAA and above), ie, AA, AA+ and AAA ratings for that adequate safety.
  3. Do keep an eye on the ratings of the companies that you are invested in.

This kind of an approach will ensure that an investor will be in a position to make a good risk-adjusted return from his/her investment portfolio. Do remember that Corporate deposits are unsecured in nature and your best guarantee against default is the track record of the company and the larger corporate group that it belongs to.

What are we recommending in Corporate Deposits Presently?

For the convenience of our subscribers, we are currently recommending the following company deposits due to their past track record, interest rate and the high safety ratings. Cumulative Interest Option is available in all deposits and minimum deposit amount is Rs 10,000 (for HDFC, it is Rs 20,000):-

  1. HDFC Platinum Deposits
  • Consistent profit making, Dividend paying Company; market leader in Housing Finance.
  • Profit After Tax (PAT) for FY 2012-13 of Rs 4,848 Cr & Dividend of 625%.
  • ‘FAAA’ rating by CRISIL & ‘MAAA’ by ICRA.
  • 9.75% rate of interest for 15 months, 9.60% for 22 months & 9.50% for 33 months giving yields of around 9.86%, 9.98% & 10.31% respectively. 0.25% additional interest for Senior Citizens.
  • Compounded Annually. Monthly, Quarterly, Half Yearly & Yearly Interest Option available.
  1. PNB Housing Finance Ltd.
  • Engaged in Housing Finance & a subsidiary of Punjab National Bank.
  • Consistent profit making Company. PAT for 2012-13 of Rs 91Cr.
  • ‘FAA+’ rating by CRISIL.
  • 9.65% interest for 1 year Deposit giving a yield of around 9.88%.
  • Compounded Half Yearly. Interest Option available:  Half Yearly.
  1. Shriram Transport Finance Company Ltd.
  • One of the India’s Largest Professionally managed asset finance Company, specializing in vehicle finance.
  • Consistent Profit making & Dividend paying Company.
  • PAT for 2012-13 of Rs 1360 Cr & Dividend of 70%.
  • ‘FAA+/stable’ rating by CRISIL & ‘MAA+/stable’ by ICRA.

Unnati Scheme

  • 10.75% interest for a 3-5 years Deposit giving a yield of around 12%; 0.25% additional interest for Senior Citizens
  • Compounded Annually. Interest Option available: Monthly, Quarterly, Half Yearly & Yearly,

Subhiksha Bond (for special tenures of 61 & 78 months only)

  • 11.30% interest for a 78 Month Deposit giving a yield of around 15.46%.
  • 11.30% interest for a 61 Month Deposit giving a yield of around 14.22%.
  • Compounded Annually. 0.50% additional interest for Senior Citizens
  • Interest Option available: Monthly, Quarterly, Half Yearly & Yearly.
  1. Dewan Housing Finance Corporation Ltd. 
  • Engaged in Housing Finance.
  • Consistent profit making and Dividend paying Company.
  • PAT for 2012-13 of Rs 451 Cr & Dividend of 50%.
  • ‘FAAA’ by BWR & ‘AA+’ rating by CARE.

Aashray Deposit – 14 Months 

  • 10.50% interest for 14 Month Scheme giving a yield of around 10.88%.
  • 0.50% additional interest for Senior Citizens/Shareholders.
  • If Deposit Amount 25 lac & Above, then 0.25% additional interest
  • If Client Senior Citizen & invest 25 Lac or more, then will get 11.25% interest (Yield: 12.52%)
  • Compounded Half Yearly
  • Interest Option available: Monthly, Quarterly, Half Yearly & Yearly.

Aashray Deposit – 40 months

  • 10.50% interest for 40 Months Deposit giving a yield of around 11.88%.
  • 0.50% additional interest for Senior Citizens
  • Compounded Annually
  • Interest Option available: Monthly, Quarterly, Half Yearly & Yearly.
  1. 5.    Mahindra Finance (Samruddhi scheme)
  • Largest non-banking finance Company of India with a history of more than 20 years. Belongs to Mahindra & Mahindra Group.
  • Consistent profit making and Dividend paying Company.
  • PAT for 2012-13 of Rs 882 Cr & Dividend of 180%.
  • The highest ‘FAAA’ rating by CRISIL.
  • 10.25% interest Compounded Annually for a 3 years Deposit giving a yield of around 11.34%. For 2 yrs, it is 10% interest.
  • 0.25% additional interest for Senior Citizens.
  • Interest Option available: Quarterly & Half Yearly.

In case you do wish to subscribe to any of the above corporate FDs, please let us know at contactus@humfauji.com.

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