Personal Finance

A good option to lock into attractive rates

K Venkatasubramanian | Updated on December 23, 2018 Published on December 23, 2018

The deposit offers a good blend of high interest rates and reasonable degree of safety

From a scenario in which interest rates were expected to go up steadily, a string of macro developments has meant that the outlook is far less hawkish now.

Investors now have an opportunity to lock into reasonably attractive rates that are currently prevalent.

The fixed deposit schemes of non-banking finance companies 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, which acts as a safety net.

In this context, Shriram City Union’s FD offers a good blend of higher interest rates and a reasonable degree of safety to depositors. ‘Shriram Sidhi’ FD is rated MAA+ (stable) by ICRA, indicating a high degree of reliability and safety with regard to servicing of financial obligations — interest and principal repayment.

Shriram City offers two options for its fixed deposit scheme — non-cumulative and cumulative. The non-cumulative option offers interest payout on monthly, quarterly, half-yearly and annual basis.

The company offers FDs with tenures ranging from 12 to 60 months. Interest rates are fairly attractive, especially for longer tenures — 9-9.25 per cent for 36-60 months in the case of non-cumulative deposits, with yearly payouts.

In cumulative deposits of 36-60 months, the rates on offer are 8.65-8.88 per cent, with monthly rests that translate to 9-9.25 per cent annual interest rates.

Senior citizens will get additional 22-23 basis points in these FDs depending on the tenure. So, for 36-60 months, the rates range 8.88-9.11 per cent with monthly rests — equivalent to 9.25-9.5 per cent annual interest. These rates are higher than what is offered by the post office Senior Citizen Savings Scheme (SCSS) on a pre-tax basis. Senior citizens who have exhausted the SCSS limit and other options can consider Shriram City FD as a diversifier and park a small portion of their surplus in the deposit.

Depositors can consider investing for tenures of 36-60 months as rates are quite attractive in that bucket through the cumulative option.

In the non-cumulative option, the rate for annual interest payout for this tenure is 9 per cent, making it attractive for those who need regular income from the deposit.

Depositors who do not need regular interest payout can opt for the cumulative option to gain from the benefits of compounding.

About the company

Shriram City has assets under management of ₹29,748 core as of September 2018, a growth of 18 per cent YoY. It finances small and micro enterprises, automobiles and two-wheelers. It also provides personal and gold loans.

The capital adequacy is solid at nearly 31 per cent. Shriram City’s net NPA is at 4.6 per cent, which the management expects to go down over the next few quarters as recoveries improve.

The minimum investment size for Shriram City FD is ₹5,000 for the cumulative option and ₹10,000 for the non-cumulative one. The deposit interest is fully taxable at the slab rate of the depositor.

Investors can open deposit accounts online or offline. Online investing can be done via the company’s website.

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