Personal Finance

Sundaram Finance FD: A good diversifier

Keerthi Sanagasetti BL Research Bureau | Updated on August 04, 2020 Published on August 04, 2020

Investors can consider two-year cumulative FDs which offer 7 per cent return

Interest rates on fixed deposits (FDs) of most banks are at a low now. Investors who can take slightly higher risk for higher returns can consider FDs of Sundaram Finance. For deposits with a tenure of two or three years, Sundaram Finance offers 7 per cent interest for the cumulative option with quarterly compounding. Senior citizens get an extra 0.25 percentage points.

The minimum deposit amount is ₹10,000. FDs of this NBFC are rated FAAA by CRISIL and MAAA by ICRA. This indicates that the degree of safety regarding timely payment of interest and principal is very strong and that the deposit programme carries the lowest credit risk.

How it compares

Falling interest rates have been pinching investors for almost two years now, accelerated by the sharp cut in repo rates by the RBI due to the Covid-19 pandemic. With rates at a multi-year low now, locking into deposits with longer tenures will mean missing out on higher returns when the rate cycle begins to move up. A two-year timeframe is hence ideal as this will give the opportunity to reinvest at better rates later on.

Rates offered by Sundaram Finance are higher than those offered by most public and private banks. Currently public sector banks offer up to 5.5 per cent for a two-year tenure. Some private banks such as IDFC First Bank and RBL Bank offer a similar 7 per cent for two-year deposits. Small finance banks that entail a tad higher risk than public and private banks, offer up to 7.5 per cent. If you have already exhausted these options and/or are looking to diversify your investments, you can go with two-year deposits of Sundaram Finance.

Sundaram’s NBFC peers such as HDFC and LIC Housing Finance, that enjoy a similar AAA rating, offer 6 to 6.3 per cent for a two to three year deposit ; While other peers such as Bajaj Finserv and Mahindra Finance offer up to 7 per cent for similar tenures.

It is pertinent to note that fixed deposits with banks (including those with small finance banks) are covered under the deposit insurance offered by DICGC, for up to ₹5 lakh. This cover is not available for NBFCs.

Other details

Application forms are available for download on the website of the company. But fresh deposits with Sundaram Finance cannot be opened online unlike some other NBFC peers. Existing customers though can continue to make renewals and additional deposits online. If you wish to withdraw your deposit prematurely, you can do so, subject to RBI guidelines.

According to the guidelines, you can withdraw your deposits after a minimum period of three months since investment. However, if the withdrawal is before six months of investment, you will lose out on the interest entirely. For withdrawals after six months, the interest rate payable will be 2 per cent lower than the interest rate applicable for the period for which the deposit has run.

If you need money for emergencies but wish to keep your deposit intact, you can do so by opting for the loan against deposit scheme of Sundaram Finance. Up to 75 per cent of the deposit amount can be availed. The interest rate on the loan will be 2 per cent above the interest rate on the deposit.

About the company

Sundaram Finance is an NBFC that lends for commercial vehicles, passenger cars and construction equipment.

It has a wide branch network of about 610 branches in the country, with a dominant presence in southern States (55 per cent of branches). Its assets under management were at ₹29,936 crore (up by 3 per cent y-o-y) as on March 31, 2020, with 53 per cent comprising loans for commercial vehicles. Gross NPAs as on that date stood at 2.47 per cent, and capital adequacy at 18.4 per cent.

Based on the March quarter results, about 64 per cent of the company’s customers — in terms of loan amount — have opted for the loan moratorium. But it is worth noting that most banks and NBFCs that have reported their June quarter results have seen a drop in the loan assets under moratorium.

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Published on August 04, 2020
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