If the current volatility in the stock markets is discouraging you from making equity investments, here is an option on the debt side. Wheels India, a TVS group company, is accepting fixed deposits from the public since June 15.

The offer

The company is accepting deposits for 12-, 25- and 36-month timeframes. The amount required to be invested in each case is a minimum of Rs 21,000, and in multiples of Rs 1,000 thereafter. The rates of interest offered for these time periods are 9 per cent, 9.5 per cent and 10 per cent respectively.

Investors have the choice between a cumulative and non-cumulative option. Under the former, interest earned will be compounded at quarterly rests and paid on maturity, along with the principal.

For the non-cumulative option, interest will be paid out every quarter. If you are not looking for regular income from the deposit, choosing the cumulative option will always give you a higher interest payout.

The 12-month option offering an interest rate of 9 per cent is not attractive for two reasons. First, this rate is equivalent to what is offered by several public sector banks such as Bank of India, Indian Bank, Corporation Bank and Union Bank.

In fact, smaller private banks, such as City Union Bank, Karur Vysya and Lakshmi Vilas Bank, offer a higher rate of 9.5 per cent. So you will be better off choosing one of these over Wheels India if you have a one-year time horizon in mind.

However, a one-year deposit at this juncture may peg up your reinvestment risk a bit, which brings up the second reason to avoid the 12-month deposit.

With deposit rates having already crossed their peak, there is a risk that rates offered across timeframes may be lower 12 months hence.

The 25-month deposit with an offer of 9.5 per cent, per se does not have competition from banks. But for only one month less, i.e., 24 months, City Union Bank and Karur Vysya Bank still offer 9.5 per cent. With bank deposits any day safer than corporate deposits, you can go with these banks if you are not too particular about the 25-month duration.

The verdict

The 10 per cent interest for three years is hence the most attractive offer from Wheels India, when we compare bank interest rates for the same period.

Among non-banks who have a reasonably good track record, Dewan Housing Finance – Aashray Deposit Plus offers the same 10 per cent for three years. Shriram Transport Finance offers a higher 10.75 per cent. But in the absence of credit rating for the Wheels India deposit, the risk vs. return profile for these three companies is not directly comparable.

Wheels India is a leading supplier of steel wheels for cars, commercial vehicles, tractors and mining/construction vehicles. Over the last three years, its revenues and profits have grown at a compounded rate of 12 per cent and 35 per cent, respectively. Its long-term debt to equity ratio as of March 2013 is 0.9.

vardhini.c@thehindu.co.in

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