Personal Finance

A good choice for conservative investors

K Venkatasubramanian | Updated on May 26, 2019 Published on May 26, 2019

The NBFC offers a mix of attractive interest rates and high degree of safety

Despite the banking regulator RBI cutting interest rates twice this year, fixed-income investors still have a few avenues to lock into deposits of high-quality non-banking finance companies on reasonably attractive terms.

The FD schemes of NBFCs tend to offer higher interest rates than those of banks. Of course, the risks are a tad higher in NBFC deposits, given that they are not insured. Bank deposits of up to ₹1 lakh are insured, acting as a safety net. Choosing the right NBFC becomes important for conservative depositors. In this context, the FD scheme from Sundaram Finance offers a good blend of attractive interest rates and a very high degree of safety to depositors.

Secure bet

The company’s deposit is rated FAAA (stable) by CRISIL, and MAAA by CARE, indicating the highest degree of reliability and safety with regard to servicing of financial obligations — interest and principal repayments.

Sundaram Finance offers two options for its FD scheme — non-cumulative and cumulative. The non-cumulative option offers interest pay-out on a monthly and a quarterly basis. Interest is credited to the customer’s bank account electronically. The cumulative option, of course, will pay the principal and the interest at the time of the deposit’s maturity.

The company offers fixed deposits for tenures of 12, 18, 24 and 26 months.

Interest rates are reasonably attractive, though not as high as those offered by a few other NBFCs, given that Sundaram Finance’s FD comes with a high degree of safety.

For cumulative and non-cumulative deposits, the rates range from 7.7 per cent to 8 per cent.

Senior citizens will get additional 50 basis points in these FDs and would enjoy rates of 8.25 to 8.5 per cent for the cumulative option.

The 24- and 36-month options (cumulative) offer 8.5 per cent for senior citizens and 8 per cent for others, and are attractive for investors.

For those below 60, the rates are similar to those offered by the post office National Savings Certificate (NSC), and for the elderly, the rates are comparable to that of the Senior Citizen Savings Scheme (SCSS) on a pre-tax basis.

Senior citizens who have exhausted their SCSS limit and other options such as deposits of small finance banks can consider the Sundaram Finance fixed deposit as a diversifier and park a small portion of their surplus in it.

If you require liquidity and cash flow, you can opt for the non-cumulative option to generate regular interest payouts.

Opting for the quarterly interest payout option would give you slightly higher rates.

Depositors who do not need regular interest payout can opt for the cumulative option to gain from the benefits of compounding. The minimum investment required is ₹10,000 for the cumulative as well as the non-cumulative options.

The FD’s interest is fully taxable at the slab rate of the depositor. NBFCs deduct TDS if the interest amount exceeds ₹5,000 in a financial year.

About the company

Sundaram Finance is a leading provider of loans for purchase of commercial vehicles, cars, tractors and construction equipment, among others.

It has well-known subsidiaries that operate in the areas of home finance, asset management and insurance.

The company made disbursements of ₹12,684 crore in the nine months of FY19, a growth of 4.9 per cent over the same period in the previous fiscal. Its assets under management as of December 2018 stood at ₹28,102 crore, an increase of 14.4 per cent year-on-year.

Sundaram Finance’s capital adequacy (CRAR: capital-to-risk assets ratio) is fairly healthy, at 17 per cent as of December 2018. The net non-performing assets ratio is reasonably under control at 1.22 per cent.

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