Personal Finance

Monthly compounding makes rates attractive

Keerthi Sanagasetti | Updated on September 29, 2019 Published on September 29, 2019

With a possible reversal in the downward rate cycle, investors can go for shorter tenures

In the current scenario where banks are reducing their deposit rates, Shriram Transport Finance (STF) continues to offer attractive interest rates on its fixed deposits. For instance, the 24-month cumulative FD issued by the company offers 8.19 per cent interest per annum. Since the deposit offers monthly compounding, this translates to a yield of 8.51 per cent per annum.

The 60-month cumulative deposit is offered at 8.88 per cent pa interest rate, which effectively yields 9.25 per cent on account of monthly compounding. The minimum amount to be invested in these deposits is ₹5,000, and deposits are offered for tenures ranging from 12 to 60 months. The interest rates offered on the cumulative deposits are 7.95-8.88 per cent.

Investors looking for regular payouts can opt for the non-cumulative scheme. The interest rates for the non-cumulative option with monthly payouts are the same as the cumulative scheme. Under the non-cumulative scheme, investors can opt for quarterly, half-yearly and yearly payouts, where the interest rates are 8-9.25 per cent.

For existing STF FD customers opting for renewal, an additional interest of 0.25 per cent pa is offered. Senior citizens, too, get an additional interest of 0.25 per cent pa. The interest rates are at a premium to the rates offered by most banks.


Amongst its NBFC peers, STF offers higher rates than Bajaj Finserv across tenures, while the rates are marginally lower than those offered by Mahindra and Mahindra Financial Services. The FDs issued by all these companies have been rated ‘FAAA’ by Crisil. ICRA has, however, rated the FDs of STF (MAA) a notch lower than that of Bajaj Finserv (MAAA).

At the current juncture, with the possibility of a reversal in the downward rate cycle, it is advisable to lock in to funds in the lower tenures. Investors can go for the one/two/three-year deposits that offer 7.95 per cent, 8.19 per cent and 8.65 per cent interest, respectively, under the cumulative option. M&M Finance offers an interest rate of 8 per cent on its 15- and 20-month deposits and 8.25 per cent for its 27-month deposits.

While the interest rates on these tenures are lower than those offered by M&M Finance, monthly compounding in the case of STF’s FDs results in a higher yield of 8.26 per cent, 8.51 per cent and 9 per cent, making them more attractive.

Shriram Transport Finance is a NBFC with its niche in the pre-owned commercial vehicle (CV) financing segment. Apart from financing this high-yielding segment, the company is also into construction equipment and tractor financing.

With an AUM (assets under managemet) of ₹1.06-lakh crore as of June 2019, the Gross Stage 3 assets (GS-3 is the gross non-performing assets (NPA) equivalent under the new Ind-AS accounting standard) of the company was 8.52 per cent of its AUM in the latest June quarter. The Net Stage 3 assets (essentially, net NPA) was at 5.97 per cent.

STF’s performance has been healthy despite industry tailwinds in both the NBFC and auto spaces. The company predominantly operates in the five- to 10-year-old heavy CV financing segment, where it currently is the market leader. The profit after tax during the recent June quarter rose 10.71 per cent YoY to ₹634 crore.

Published on September 29, 2019
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