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Even as SBI cut its deposit rates last week, there are still a few good fixed-income investment options in the market. For instance, Sundaram Finance has been accepting/renewing deposits from the public.
The company accepts deposits for 12-, 18-, 24- and 36-month time-frames with a minimum deposit of ₹10,000, and in multiples of ₹1,000 thereafter. Investors can choose between the cumulative and non-cumulative options.
Under the former, the rates of interest offered are 7.75 per cent, 7.75 per cent, 8 per cent and 8 per cent for the 12-, 18-, 24- and 36-month options, respectively. In this option, interest will be compounded quarterly and paid on maturity, along with the principal.
For the non-cumulative option, the interest will be paid out monthly or quarterly. Interest rates for the monthly payout options are 7.7 per cent, 7.7 per cent, 7.95 per cent and 7.95 per cent, respectively, for the stated tenures and will be paid at the end of every month. In case of quarterly payout, the interest rates offered are similar to the cumulative option — 7.75 per cent for the 12- and 18-month deposits and 8 per cent for the others, and are paid on the last day of March, June, September and December.
Decent returns
The interest rate offer of 8 per cent pa from Sundaram for the two-year tenure under the cumulative option is attractive compared with most other debt options, with similar tenures, in the market now. The yield on this option is equivalent to 8.66 per cent per annum.
For fixed deposits of similar tenures, while private sector banks offer 7-8 per cent, public sector banks offer a lower 6.5-7 per cent per annum. Though small finance banks offer higher rates of interest, accessibility could be an issue due to their limited presence.
On the safety front, too, the Sundaram Finance deposit offers comfort. It has obtained ‘FAAA’ (highest safety) rating by CRISIL for the deposits, indicating that the degree of safety regarding timely payment of interest and principal is very strong.
On comparison with two-year fixed deposits offered by other corporates with AAA rating, a few NBFCs such as Mahindra Finance (Samruddhi Cumulative Scheme) and Bajaj Finserve — with yields of 8.5 per cent and 8 per cent, respectively — rank only next to Sundaram. Shriram Transport Finance offers a higher yield (8.88 per cent per annum). However, deposits from Shriram Transport Finance carry a higher risk as it has a AA rating (MAA+) from ICRA.
Senior citizens get about 0.5 percentage points more than the interest rates offered to others.
Under the two-year tenure, the interest rates offered for non-cumulative options, too, are decent.
Investors can park a portion of their surplus in the two-year FD offered by Sundaram. While interest rates in the economy have been moving down, they may be nearing the bottom of the cycle now. Hence, by investing in a two-year deposit, you can hope to reinvest at higher rates two years down the line, if rates start to move up.
One can obtain a loan against deposit of up to 75 per cent of the deposit amount after the lock-in period. The lock-in period for withdrawal from the scheme is three months. If the deposits are withdrawn after three months but before six months, no interest is payable for the deposited period. But if the deposit is withdrawn after six months but before the date of maturity, the interest payable is 2-3 percentage points lower than the interest rate applicable to the tenure.
Deposits from non-resident Indians, too, are accepted by cheques issued from their non-resident ordinary bank accounts.
About the company
The company is predominantly a commercial vehicle financier and has delivered steady performance, thanks to its focus on asset quality and strong positioning. It has been able to raise funds through multiple channels over the past several months. Over the past three years, its disbursements have grown at a compounded rate of 14.48 per cent. Its net profit grew about 7 per cent in FY19 to ₹604 crore from the previous year. However, its gross NPAs (non-performing assets) increased in FY19 to 1.33 per cent from 1.27 per cent a year ago. But it is still within comfort zones.
The company currently has no overdue deposits other than unclaimed deposits.
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