Product Review. How good is Bajaj Finance’s Single Maturity Scheme?

Taking cues from the systematic investment plans (SIPs) of mutual funds, Bajaj Finance launched a new FD product earlier this year — the Systematic Deposit Plan (SDP).

We reviewed the product in January this year ( tinyurl.com/SDPBaj ). Bajaj Finance has now launched a variant of SDP, with a ‘Single Maturity’ option.

We take a look at whether this new feature makes the cut as a worthy investment.

Recap

The SDP essentially allows a person to make regular investments, a minimum of ₹5,000 every month. Each monthly investment is treated as a separate deposit, with tenures of each deposit being 12-60 months, at the choice of the investor. In addition, investors can opt for the number of monthly deposits, ranging from six to 48.

All deposits under SDP are cumulative deposits, implying that the interest will be paid on maturity only. The SDP essentially helps create a laddering effect due to different FDs under SDP maturing on different dates.

The change is that this product introduced in January is now called ‘Monthly Maturity Scheme’. Alongside,the company has launched a new variant, the ‘Single Maturity Scheme’. Here, customers will receive the maturity proceeds of all the FDs created systematically, as a lump sum, in a single day. Under the Single Maturity Scheme, one can deposit for tenures between 24 and 60 months. The number of deposits (beyond the first deposit) one can opt for varies from six additional deposits to 36, depending on the tenure.

Customers opting for a tenure of 24 months (minimum tenure under Single Maturity Scheme) will be required to make six additional deposits under the SDP (after the initial deposit). For SDP of higher tenure, say, 36 months, customers can opt to pay either six or 12 additional deposits. Similarly, for a 48-month tenure, one can opt to pay six, 12 or 24 additional deposits, and for a 60-month tenure, the options available are six, 12, 24 or 36 additional deposits.

The tenure of each deposit (instalment), after the first deposit, will gradually reduce such that all of them mature on a single date. Say, you opt for a single maturity scheme of 36-month tenure and opt for six additional deposits — your first deposit will have a maturity of 36 months. The second deposit will mature in 35 months, and third/fourth/fifth/sixth/seventh deposit will mature in 34/33/32/31/30 months, respectively.

Under this scheme, every deposit will fetch interest, according to the prevailing rate of interest on the date of deposit and for the respective tenure.

Worth it or not?

Post the recent revision in rates, Bajaj Finance offers interest rates of 6.9-7.1 per cent for (cumulative) deposits ranging 12-60 months.

Customers who apply online and senior citizens get an additional interest rate of 0.1 per cent and 0.25 per cent, respectively. The company’s deposits are rated AAA.

While the rates offered by Bajaj Finance are higher than most public sector banks, a few private banks —IndusInd Bank and RBL Bank, for instance — offer rates that are 10-15 basis points (bps) higher than those offered by Bajaj Finance currently. Small finance banks offer 10-25 bps higher rates, across tenures.

That said, investing in SDP, whether single maturity or multiple maturities, may make sense only in a rising-rate scenario.

If the company revises its interest rates at regular intervals, successive instalments will be locked into higher rates.

However, if you want to maximise the interest earned, deciding the number of systematic deposits and the tenure of the instalments beforehand can be a difficult task.

The new variant of SDP — single maturity scheme — can be somewhat similar to a recurring deposit (RD). But the difference is that in an RD the interest rate is constant throughout the tenure (flexi RDs may pay out higher interest on the stepped-up amount). Also, in an RD, you are required to contribute every successive month.

Under the single maturity scheme, you don’t contribute for all the months of the tenure. You can choose the number of months you want to contribute.

In a traditional RD, banks generally charge a penalty —in the form of lowered interest rate —in the event of a delay in or non-payment of an instalment.

No such penalty applies in the case of the SDP. Delaying a month’s SDP instalment only alters the tenure of that deposit (in the case of single maturity scheme) or pushes your maturity date for that instalment further (monthly maturity scheme).

You also have the flexibility to stop investing or restart after a gap with a new ECS (electronic clearing service) mandate.

If you have a steady cash inflow which you wish to keep reinvested, this product could be an option apart from RDs.

Otherwise, it is suitable for those who cannot keep a regular watch on interest rates in the market and the rates offered by different entities.