Portfolio

Three fixed deposit options for 2020

Satya Sontanam | Updated on January 08, 2020 Published on January 08, 2020

Choosing a 1-2 year tenure will help reinvest at a higher rate if interest rates move up

Investors have been feeling the heat of interest rate cuts in fixed deposits (FDs) over the past year. However, if you have a lower risk appetite and would rather not go for stock market-linked products, or are looking to invest in FDs for diversification purposes, we have listed three FDs that seem attractive at this point in time.

Keeping in mind that interest rates currently are closer to the bottom, we have recommended investing in these FDs only for a one- or two-year tenure.This will ensure that you do not lose the opportunity of locking into higher returns when the interest rate cycle moves up.

We have chosen a bank FD, a small finance bank FD and an NBFC FD, which you can invest in, based on your risk-taking ability. Apart from the competitiveness of the interest rates offered, these options are also selected based on the financial soundness of the institutions offering the FDs.

Bank FD: DCB Bank

DCB Bank’s 7.5 per cent interest for a 18-24 month tenure is among the best offered by banks currently.Most other banks offer 6.5-7.25 per cent for a similar period.

Further, if you choose the cumulative option, the interest is compounded quarterly, resulting in an effective yield of 7.71 per cent per annum. Senior citizens get an additional 0.5 percentage point.

Bank deposits are covered by the Deposit Insurance and Credit Guarantee Corporation of India (DICGC). Each depositor is insured for up to ₹1 lakh for both principal and interest.

About DCB Bank

DCB Bank, with a new management since 2009, had shifted its focus towards secured lending, which has helped it tide over its asset quality issues. It has delivered a healthy 26.21 per cent annual growth in net income between FY13 and FY19. The bank predominantly focusses on mortgages and SME/MSME lending. Its gross non-performing assets as a percentage of loans has ranged from 1.5 per cent to 1.84 per cent over the past five fiscal years. As of September 2019, its gross NPAs stood at 2.09 per cent.

DCB Bank’s capital adequacy ratio, which measures a bank’s capital in relation to its risk-weighted assets, was at a comfortable 16.16 per cent as on September 30, 2019.

Small finance banks (SFBs) offer higher rates than DCB. But, if you find SFBs difficult to access, DCB Bank’s FD is a good alternative. The lender has a fairly good network with 334 branches spread across 19 States and three Union Territories.

SFB FD: Fincare

Investors looking for safe avenues to park their money in without compromising too much on returns can consider SFB deposits. Being recent entrants, these banks have been offering good rates on their FDs to woo customers.

Among these, Fincare SFB offers 8.5 per cent for 21-month-1-day to 24-month deposits. The offer is superior to what’s given by traditional banks. Senior citizens get an additional 0.5 percentage point.

In terms of safety, SFB deposits, too, are covered by DICGC, which insures principal and interest for up to ₹1 lakh. Thus, SFB deposits are safe for investors who don’t have much appetite for risk.

About Fincare

Fincare SFB commenced operations in July 2017. It has a presence across Tamil Nadu, Karnataka, Andhra Pradesh, Gujarat, Maharashtra, Madhya Pradesh, Puducherry, Haryana, Delhi and Rajasthan.

While the bulk of its lending is still to the microfinance segment, Fincare is looking to diversify its portfolio. It has also bounced back quite well from the impact of demonetisation, improving its loan growth and profits since then. The bank’s gross NPA as on March 31, 2019, stood at 1.29 per cent. Investors who don’t have the risk appetite for NBFC deposits, or already have considerable exposure to them, can consider SFB deposits.

Non-bank FD: Bajaj Finance

Investors who have an appetite for some risk and are also looking to diversify from bank FDs can consider parking a portion of their surplus in the FDs of Bajaj Finance, a subsidiary of Bajaj Finserv. The deposit is rated FAAA/Stable by CRISIL and MAAA (Stable) by ICRA, denoting that the degree of safety regarding timely payment of interest and principal is very strong and that the credit risk is the lowest.

The 7.6 per cent offered by Bajaj Finance for a 12-23 month tenure is higher than what some comparable NBFC deposits offer. AAA-rated NBFCs LIC Housing Finance and HDFC, for instance, offer less than this. The investment in this FD can be made online, for which the relevant documents will be collected by the company’s representative from the depositor’s home. The minimum deposit amount is ₹25,000. The company offers 0.10 percentage points higher interest for Bajaj Group employees, Bajaj Finance customers and existing policyholders of Bajaj Allianz Life Insurance. Senior citizens get an additional 0.25 percentage point.

About Bajaj Finance

Bajaj Finance focusses on lending to the consumer, rural, SME, mortgage and commercial segments, with consumer loans constituting 39 per cent of the total. It has a wide presence across 956 urban and 1,041 rural locations. Its assets under management were at ₹1,35,500 crore as on September 30, 2019. Gross NPAs as on that date stood at a low 1.61 per cent, and capital adequacy at a robust 19.68 per cent.

Published on January 08, 2020
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