Why should you lock into attractive FD interest rates now?
5 min read 20 Apr 2020, 04:10 PM ISTFor investors across all income groups, capital preservation has become the top priority during these uncertain times. Adding fixed-income instruments like fixed deposit to your portfolio can help you get assured returns.
PremiumA well-informed investor would have seen the writing emerging on the wall since last year, when impending recessionary trends started. One such trend has been gradual cuts in repo rates starting February 2019, when it was cut from 6.5% to 6.25%. There were four such cuts in 2019 and one on March 27, 2020, when it was reduced to 4.4%. This was a clear indicator of efforts towards increasing liquidity in the market by the central bank.
Even recently, on April 17, 2020, the RBI announced various liquidity measures and further reduced the reverse repo rate from 4% to 3.75%. With this announcement, the excess liquidity in the economy is expected to exert downward pressure on interest rates.
Additionally, since business and manufacturing activities having slowed down over the last couple of months, returns on capital are unable to meet their growth targets. This has affected revenues, growth in business prospects and even salaries and payments. Thus, the spending has taken an economy-wide hit – bringing people's attention back to their savings and investments.
Safety and assured growth of savings is the chief focus
For investors across all income groups, capital preservation has become the top priority during these uncertain times. With markets becoming a victim of large FII sell-out of Rs. 25,000 crores till March 2020, investors must revisit the investment portfolio to re-balance between riskier and risk-free assets in their portfolio. Thus, adding fixed-income instruments like fixed deposit to your portfolio can help you get assured returns, with a high safety of capital amount.
However, given that systemically important institutions such as banks and NBFCs are also facing turmoil, which is evident as banks had under-reported their NPAs by Rs. 24,000 crores as on March 31, 2019, it is important that you make an informed choice while selecting your financier.
Choose your financier with utmost care
When choosing the right FD issuer, here are some important parameters you must consider:
i. Interest rates
For any investor, high interest earnings are of prime concern. Make sure to compare FD interest rates between banks and NBFCs, as bank FD rates have been steadily going down following the repo rate cuts.
The following comparison shows the difference in the earnings from bank fixed deposits and those of well-placed NBFCs like Bajaj Finance for senior citizen fixed deposits.
Also, Bajaj Finance FD is offering higher interest rates (up to 8.05%) as compared to other fixed-income investments such as Public Provident Fund (PPF) and National Savings Certificate (NSC), SCSS (Senior Citizen Savings Scheme) which are currently offering interest rates of 7.1%, 6.8%, and 7.4% respectively.
Even new customers can benefit from high FD interest rates offered by Bajaj Finance, and grow their savings by at least 45% even during these times. To understand this better, let’s assume an investment of Rs. 10,00,000 locked into a Bajaj Finance FD for 5 years. The table below shows the growth of savings across different customer segments:
To plan your investments better with fixed deposit, you can also consider using tools like Bajaj Finance FD Calculator to determine the maturity amount, interest payouts and overall fixed deposit returns, before you even invest in FD.
ii. Financial standing – An NBFC’s financial standing is of utmost importance for an investor. Bajaj Finance, as a company, is high on financial revenue as it stands with 11.08% of Net Interest Margin or NIM (as on March 31, 2020) - a primary factor for evaluation of lending and borrowing institutions. Also, Bajaj Finance is the only NBFC with ‘0 unclaimed deposits’.
A high Capital Adequacy Ratio (CAR) indicates the safety of your deposits and Bajaj Finance easily surpasses the standard of 18% with a standing of 25% as on March 31, 2020.
iii. Ease of investing- Investing with Bajaj Finance online FD can enable existing customers to reap the benefit of end-to-end online paperless investment process, making it easy for them to invest online from the comfort of your home.
iv. Utmost safety with high credibility ratings - Bajaj Finance is one of the highest-rated NBFCs in India with an international rating of ‘BBB-’ by S&P Global; while its deposits have earned the highest safety ratings of FAAA/Stable by CRISIL and MAAA (stable) by ICRA. This is as good as any instrument with a sovereign guarantee and the safety of your capital and interest is assured.
v. Trust – Bajaj Finance as an investment company enjoys wide acceptance and trust from senior investors as well as newbie ones. It has 2,35,925 unique FD customers, with a deposit book of Rs. 20,805 crores. Senior citizens especially trust the company with their retirement funds as there are 92,712 unique senior citizen accounts contributing towards a deposit book of Rs. 6,211 crores. These figures indicate the level of trust reposed in the company, by its customers, who’ve continued to invest in this fixed deposit.
vi. Flexibility – Unforeseen expenses may warrant immediate financial action, leaving most investors with no other option, than withdrawing their fixed deposit prematurely. Most FD issuers enable premature FD withdrawals, as per RBI guidelines, albeit with small penalties and loss of interest.
However, loan against FD is a great solution for investors seeking urgent financing, without losing on their fixed deposit returns. Bajaj Finance, for instance, offers easy loan against fixed deposit at lower interest rates, quick processing, flexible repayment options and minimum documentation.
Locking in to high FD interest rates now is a prerequisite, amid RBI’s continuous liquidity measures that may induce a downward movement of fixed deposit interest rates, particularly if high liquidity persists in the banking system. This is evident from the recent reduction of interest rates for not just leading bank FDs, but also government savings schemes and saving accounts.
Thus, it is imperative to lock into your investments at prevailing high FD rates before these rates fall, so you can safeguard your deposits and get assured returns. Choose high safety of your savings, and make a smart choice with Bajaj Finance Fixed Deposit.
Disclaimer: This content is distributed by Bajaj Finserv. No HT Group journalist was involved in the creation of this content.
