FD Watch. Lock into these lucrative options

Banks have slashed their fixed deposit (FD) rates by 100-150 basis points (1-1.5 percentage points) over the past year.

With interest rates on a downward cycle and the RBI cutting the repo rate by 25 basis points in its latest April review, deposit rates can fall further.

Axis Bank and Vijaya Bank, for instance, have cut their FD rates further across several tenures recently. To lock-in before any more corrections, invest in two to three-year deposits.

Considering that it may be quite some time before rates start moving up again, these tenures cover reinvestment risk that may arise if you invest in FDs with shorter tenures — few months or a year.

Today, the best rates that you can get on two to three-year bank fixed deposits are 8.05 per cent and 8 per cent offered by DCB Bank and J&K Bank respectively. NBFC deposits, though relatively risky, offer better returns than bank deposits.

If you want to keep your risk to the minimum, you can choose from only AAA-rated NBFC deposits. Dewan Housing Finance (DFHL) and Bajaj Finserv’s two to three-year FDs, are two such deposits offering the best interest rates for two to three-year periods.

You can invest in DHFL’s two- to three-year deposits (cumulative option) and earn an interest rate of 8.75 per cent per annum on FDs of less than ₹50 lakh. While this appears somewhat lower than Bajaj Finserv’s 8.9 per cent per annum interest rate on similar tenure deposits (of up to ₹5 crore), since the interest is compounded half-yearly for the DHFL deposit, the returns are actually higher, though only a tad. For instance, a ₹50,000 FD with DHFL for three years will fetch you an interest income of ₹14,647.

One with Bajaj Finserv, which compounds interest annually, will get you ₹14,573.

One more count on which DHFL scores over Bajaj Finserv is the much lower minimum investment required for the deposit. While you can invest as little as ₹2,000 in a DHFL deposit, the amount is substantially higher in case of Bajaj Finserv.

You have to put in at least ₹75,000, if you are a customer in the National Capital Region and Greater Mumbai and ₹50,000 in all other branch locations.

Also, every additional deposit must be made in multiples of ₹50,000 as against DHFL’s ₹1,000.

DHFL also offers a free accidental death insurance cover of ₹1 lakh to individual depositors and the first depositor in case of a joint account.

Third, in case of pre-mature withdrawal, if the FD is closed after three but before six months, DHFL pays 4 per cent per annum interest rate, while Bajaj Finserv pays back only the principal amount.

If the FD is withdrawn after six months but before the maturity date, DHFL will pay 1 per cent lower rate than the applicable interest rate, while Bajaj Finserv will deduct 2 per cent penal rate.

Both the FDs have a minimum lock-in period of three months.

DHFL deposits enjoy AAA rating by CARE and BWR FAAA by Brickworks and the Bajaj Finserv FDs are rated FAAA/Stable by CRISIL.

Mahindra and Mahindra Financial Services offers 8.45 per cent on its CRISIL-FAAA-rated two and the three-year deposits. LIC Housing Finance’s SANCHAY Deposit (CRISIL-FAAA/stable) is a notch lower at 8.35 per cent and 8.4 per cent for the two- and the three-year periods, respectively.

Though lower than DHFL or Bajaj Finserv, these rates are nevertheless higher than bank deposits.

DHFL is a housing finance company with focus on low and medium income group. Its net profit grew 16.5 per cent (year-on-year) to ₹749 crore in 2015-16. It had an outstanding loan book of ₹61,775 crore as of March 2016, up 21 per cent from the previous year.  Its gross non-performing assets went up to 0.93 per cent in 2015-16 from 0.8 per cent a year ago.

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