FDs of NBFCs like HDFC, Mahindra Finance in demand as clamour for rate cut gets louder

MUMBAI: Fixed deposits (FDs) of highly-rated companies are gaining popularity among investors as calls for lower interest rates get louder. Financial advisors are asking clients to lock money in company fixed deposits offering higher interest rates than bank deposits as any rate cuts in 2015 could lead to rates on these instruments falling too.

Fixed deposits from non-banking finance companies (NBFCs) such as HDFC, Mahindra Finance, Shriram Unnati, Dewan Housing Finance, along with some manufacturing companies, are increasingly finding takers, said distributors. While the State Bank of India's (SBI) fixed deposit pays a maximum of 8.5%, company fixed deposits pay 100-300 basis points higher than bank FDs.

“Fears of interest rates going down in the coming year are making investors, especially retired individuals, invest in company fixed deposits,” says Anup Bhaiya, MD and CEO, Money Honey Financial Services. The dearth of high yielding non-convertible debentures (NCDs) is also prompting investors to opt for companies' fixed deposits.

Bhaiya advises fixed deposit investors to lock in their deposits for a higher tenure, given the imminent fall in fixed deposit rates in the coming year. While a Mahindra Finance and Dewan Housing Finance with AAA rating pays 9.75% for a 3-year deposit, Shriram Transport Finance with a AA+ rating fetches 10.5%. Some companies dole out an additional 0.25-0.60% interest to senior citizens. Among manufacturing companies, JK Paper, Sudarshan Chemicals, Kores India, JK Tyres, GATI and Prism Cement are generating interest amongst investors. For 3-year deposits, Kores pays 11.5%, GATI 12%, Sudarshan Chemicals 10.25% and JK Tyres 9.5%.

Investors are rushing back to manufacturing after a while. After the new Companies Act came into effect in April 2014, manufacturing companies had stopped accepting fixed deposits to comply with the new regulations. According to the new rule, a company keen to raise money through deposits has to get itself rated by a rating agency, pass a resolution at a general body meeting authorising the invitation of such deposits, and provide for deposit insurance on these FDs.

Typically, many retired individuals and senior citizens look around for company fixed deposits where the minimum investment amount is between Rs 10,000 and Rs 25,000 with tenure of 1, 2 and 3 years. Many companies give a monthly income option that helps retirees meet their regular expenses. “Since fixed deposits are unsecured instruments, investors would do well to go with companies that command a high rating,” says Rupesh Bhansali, head (distribution), GEPL Capital. He advises investors to go with companies that command AAA or AA ratings only.