Fall in corporate FD rates to hit retirees hard

MUMBAI: Individuals relying on company fixed deposits (FDs) for interest income may need to brace for lower rates. Companies offering fixed deposits have cut their interest rates by 25-75 basis points in the last 15 days in line with the fall in rates offered by bank deposits.

100 basis points is equivalent to 1%. Wealth managers said investors could look at select categories of debt mutual funds ( MFs) to boost their fixed income returns.

Bajaj Finance, which offered interest rates of 8.9%, will now offer 8.2%. HDFC has reduced its rates from 8.4% to 7.9%, while Mahindra Finance has reduced it from 8.3% to 8.05%. ICICI Home Finance has cut rates from 8.4% to 7.9%. Financial advisors said more companies are likely to follow suit. These rates, however, are still higher than the maximum of 7.25 -7.50% offered by nationalised and private sector banks.Retirees are one of the biggest holders of company deposits.

Financial planners believe a combination of debt mutual funds and NCDs (non-convertible debentures) could help investors in fighting lower deposit rates. The reduction in interest rates is in line with the falling rates in bank deposits. To protect their interest income, one way out for investors is to look at debt MFs,“ says Amol Joshi, founder, PlanRupee. He believes debt MFs which are managed well could give 50-100 basis points higher returns as compared to fixed deposits.

Debt funds score over company deposits as they hold a diversified portfolio of bonds and hence, the risk is lower. In addition, there are benefits of investing in debt funds -as and when interest rates fall, you are compensated as you earn a capital appreciation.