Safe bet. Sundaram Home Finance offers 8% on FDs: Should you invest?

As the season of rate revisions from banks and non-banking finance companies continues, fixed deposit investors are increasingly getting better deals.

Sundaram Home Finance has recently revised the rates on fixed deposits. The Chennai-based lender’s deposits carry the highest AAA rating and are therefore quite safe in terms of principal and interest servicing.

There are cumulative, quarterly and monthly payout options for depositors. While senior citizens get 8 per cent interest on deposits with tenors of 48 months and 60 months, others get 7.65 per cent for these periods. These are quite attractive rates compared to the current options available for depositors, especially for senior citizens.

Here’s what you must understand about Sundaram Home Finance’s deposits before investing in them.

Healthy financial metrics

The company offers home, plot, and home improvement loans. It also gives loans against property. The split between housing and non-housing loans is roughly in the ratio of 70:30, enabling reasonable yields from advances. Key parameters are fairly strong for the company.

• The disbursements in the first half of FY23 as of September 2022 quarter was ₹1,736 crore, which was 94.8 per cent higher than the first half of the previous fiscal year.
• Assets under management for Sundaram Home Finance was ₹10,177 crore as of September 2022, which was 11.4 per cent higher than the figures for September 2021.
• Profit after tax was up 22.3 per cent in H1 of FY23 at ₹97.6 crore versus H1 of FY22.
• The capital adequacy ratio as of September 2022 was 24.4 per cent, a bit lower than the 25.8 per cent it recorded in September 2021. The figure is still fairly robust.
• Gross stage 3 assets declined sharply from 4.95 per cent as of September 2021 to 2.78 per cent as of September 2022. Stage 3 assets are those that are 90 days past due. Net stage 3 assets are 1.57 per cent (September 2022) and 2.55 per cent (September 2021). Thus, the asset quality is improving significantly for the company.

Housing finance focused on the retail segment is relatively safer than other avenues. Sundaram Home Finance’s key metrics are improving steadily.

What must investors do?

 The deposits are attractive at higher tenors of 48 months and 60 months. For individuals looking to invest in a relatively safe option over these tenors, it may be advisable to choose these tenors as rates elsewhere are better for lower tenors.

For senior citizens, the 8 per cent interest rate on 48 and 60-month tenors is among the best on offer. But this rate is available only in the cumulative option. Investors who do not require regular income can lock into these tenors. For senior citizens who require regular payouts, the rates are lower. The quarterly payout option is attractive at 7.77 per cent for the tenors mentioned earlier. There is a monthly payout option as well, but the rates are a bit lower. The minimum investment amount is ₹10,000.

Overall, investors can consider parking a small portion of their debt portfolio in these deposits.