FD Watch. Mahindra Finance: Go for the online option

The Dhanvruddhi fixed deposit (FD) scheme from Mahindra and Mahindra Financial Services (Mahindra Finance) offers an attractive deal for investors. While bank deposits are covered by deposit insurance of up to ₹1 lakh, NBFC deposits aren’t. This pegs up the risk for these deposits.

For the higher risk that they entail, these institutions usually offer superior interest rates than banks. FDs of Mahindra Finance offer a good blend of safety and return. The company’s FDs have the highest AAA rating from CRISIL. The rates offered for the Dhanvruddhi scheme are better than what most AAA-rated peers such as Bajaj Finance, PNB Housing Finance, HDFC and LIC Housing Finance offer for similar tenures.

Go for 33-month deposit

Mahindra Finance offers two FD schemes — the Dhanvruddhi and the Samruddhi. The Dhanvruddhi is an ‘online only’ scheme, where investors have to deposit through the Mahindra Finance website to get the rates applicable for the scheme. Across tenures of 15-40 months, Dhanvruddhi offers rates that are one to two basis points higher than deposits that have somewhat similar tenure under Samuruddhi (see table).

Investors can go for the 33-month cumulative scheme under Dhanvruddi that offers an interest rate of 9 per cent.

The minimum deposit amount is ₹5,000 and the interest is compounded annually. In terms of tenure, the closest match among other peers for this scheme is a three-year or 36-month deposit — Shriram Transport Finance and Shriram City Union Finance offer 8.65 per cent for this tenure but with monthly compounding.

Here, the effective yield on the FD on maturity is slightly higher than that of Dhanvruddhi.

However, it is not an apple for apple comparison as both these companies have an AA+ rating for their FDs from one of the agencies, while the other has rated them AAA. Also, the Dhanvruddhi is a 33-month deposit while that offered by these companies has a 36-month tenure.

Dhanvruddhi’s rates are also a notch above other AAA-rated NBFCs. For a 36-month tenure, their rates are at a lower 8-8.75 per cent, with the same annual compounding of interest.

Though the interest rate cycle is just beginning its up-move and lower risk bank deposits may start becoming attractive, they may have to do quite a bit of catching up to be on a par with Dhanvruddhi. Currently, for a three-year deposit, banks offer only 6-8 per cent interest.

Additional features such as loan against the deposit are available up to 75 per cent of the deposit amount; a ₹1-lakh worth personal accident insurance cover is also available with the deposit.

About the company

Mahindra Finance lends for purchase of utility vehicles, tractors, cars, commercial vehicles and construction equipment and has a strong presence among the rural and semi-urban markets. Rural consumption has been driving growth for consumer sectors in recent times, growing much faster than urban consumption. Mahindra Finance will be a beneficiary of this trend.

Mahindra Finance enjoys the strong parentage of Mahindra and Mahindra (M&M). Thus, the company is better placed among NBFCs to tide over the ripples of the liquidity crisis that has been prevalent in the sector after the IL&FS default.

For the half -year ended September 2018, the company’s total income moved up by 34 per cent to ₹4,088 crore, while profits grew by 78 per cent to ₹650 crore.

The total assets under management (AUM) stood at ₹59,473 crore as on September 30, 2018, as against ₹47,213 crore, as on September 30, 2017, a growth of 26 per cent.

Its gross NPA has come down from 13 .1 per cent in the first half of fiscal 2018 to 9 per cent in the first half of this fiscal.

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