Financial Daily from THE HINDU group of publications
Sunday, Sep 08, 2002
Money & Banking - Financial Institutions
Columns - FD Watch
TN Power Finance: Not so powerful
TAMIL Nadu Power Finance accepts deposits under three schemes. Under the regular interest payment scheme (RIPS), deposits are accepted for 24, 36, 48 and 60 months. The 24-month deposit pays interest at 8.31 per cent per annum at quarterly intervals. For deposits above 36 months (36, 48 and 60 months), the interest rates are 9.25 per cent for monthly payment, 9.32 per cent for quarterly and 9.65 per cent for annual interest payment options.
Cumulative scheme I is available for one to five years. The effective yield per annum works out to 8.30 per cent, 8.94 per cent, 10.61 per cent, 11.14 per cent and 11.70 per cent for one, two, three, four and five years respectively. The minimum deposit amount is Rs 10,000.Under the cumulative scheme II, a minimum deposit of Rs 631 matures to Rs 1,000 in five years, giving an effective yield of 11.70 per cent per annum.
The interest earned on these deposits is eligible for tax deduction under Section 80L of the Income-Tax Act up to a maximum Rs 12,000.
Deposit applications can be obtained from the registered office of the Corporation at No 84, TTK Road, Alwarpet, Chennai - 600 018.
Recommendation: The fixed deposit programme of TN Power Finance does not offer any attractive options, despite the variety. However, the tax concession is an extra benefit, this is available only for a few finance companies. The longer end of the tenures on offer can be avoided as they restrict the flexibility to alter investment decisions at a later date, when better options may become available.
Therefore, cumulative scheme II can be ignored. The two-year deposit can also be avoided as other companies offer higher returns for this period.
Instead, a three-year cumulative as well as annual interest payment option can be considered, as the incremental returns are higher. Though not very attractive, a one-year cumulative deposit can be considered if investors have unexhausted the limit under Section 80L.
TN Power Finance, a Government of Tamil Nadu enterprise, provides financial assistance for those engaged in generation, transmission and distribution of power and infrastructure development. The company falls in the medium risk category. While on the one hand, the government backing lends some amount of safety to depositors, on the other, the not-so-good financial position of the TNEB its primary customer is a cause for concern.
TN Power Finance has paid dividends at a steady rate in the past and has not got any budgetary support from the government so far. Considering its track record, it may not face problems servicing its deposits.
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