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The Reserve Bank may not have cut interest rates this time, but with the rates crossing their peaks, return on debt instruments are beginning their descent. It therefore pays to lock in surpluses that you have at the prevailing rates.
An attractive and low-risk investment avenue for senior citizens (those who have completed 60 years) is the Fixed Deposit from Sundaram Finance.
For a minimum of Rs 10,000 and in multiples of Rs 1,000 thereafter, the company is currently accepting deposits for maturities ranging from 12-36 months. These deposits have been rated MAAA / Stable by ICRA. This rating implies that the company has the highest credit quality and the lowest credit risk.
Deposits are offered under both the cumulative (where interest is paid out with the principal on maturity) and non-cumulative (where interest is paid out on monthly/quarterly basis) options. Senior citizens are offered an additional 0.50 percentage points over the normal rates. The accompanying table details the interest rates offered for senior citizens under various categories.
cumulative, short-term options
Those with a horizon of 12-18 months can invest in this FD. Unless you’re looking for a regular income from this investment, choose the cumulative scheme. The company offers an interest rate of 10.25 per cent for these periods under the cumulative option. This offering is unmatched both by peers such as Shriram Transport Finance and Mahindra Finance or by banks.
A similar FAAA rated (CRISIL) deposit of Mahindra Finance offers only 9.5 per cent for a 12-month deposit and 10 per cent for an 18-month deposit for seniors. The slightly more risky Shriram Transport Finance (FAA+) is less attractive too, offering only a similar 9.5 per cent for one-year and 10 per cent for two-year maturities.
Even banks don’t match up. For a one-year period, the highest return offered for seniors is 10.05 per cent by smaller banks such as Lakshmi Vilas Bank and Bank of Maharashtra. Few others such as Axis, Tamilnad Mercantile and Karur Vysya offer 10 per cent. For 1-2 years, most banks either offer as much as they do on a one year deposit, or lower.
Alternatives for 2-3 year deposits
However, if you are looking for a two or a three year time-frame, there are choices outside Sundaram Finance. Mahindra Finance is one. It offers 10.25 per cent and 10.5 per cent for 24-and 36-month deposits respectively. For the same risk profile, this is higher than Sundaram Finance’s 10 per cent.
For 2 years (24 months), for instance, LVB offers 10.25 per cent. Catholic Syrian Bank offers 10.25 per cent for 36 months. Bank deposits up to Rs 1 lakh are covered by deposit insurance. Hence a lower-risk, higher-return on these in comparison with the Sundaram Finance FD tilts the scales in favour of banks.
non-banking company
Sundaram Finance is a non-banking finance company, financing the purchase of new commercial vehicles.
For the quarter ended June 2012, it posted a 26 per cent year on year growth in net profits to Rs 95 crore. Disbursements grew by 31 per cent to Rs 2,413 crore. Its gross non-performing assets (NPAs) were at 0.73 per cent while net NPAs were at 0.18 per cent.
Lower borrowing costs when compared to peers, thanks to its diversified liability base and superior asset quality, despite the tough economic environment are positives for the company.
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