Hi !!
A group member was inquiring directly about Fixed Deposits. And Safety of his / her corpus in particular. Our investor wanted to step away from his / her traditional PSU Bank where he was fully invested in FDs. Plus someone told the investor that the PSU Bank in particular was not posting healthy financials.
Now this is an individual decision. As to where to invest for fixed deposits. And if this is a prudent mode in terms of financial wisdom. And I am certainly not a financial advisor. Just a retired senior guy from a major financial institution. But I have clarified as follows - and later thought of sharing what I clarified -
Safety wise we have
Post Office.
They have only Time Deposits. Here Interest is paid yearly. Then there is the Monthly Income Scheme offering 7.4 percent. These rates are reset from time to time. They may be slightly cumbersome to approach and invest in but they are the safest. Technically you are depositing with the Govt / Sovereign. NSCs KVPs are there too. And PPF. Invest and sleep soundly.
Remember normally safety of this nature comes at a price, which is comparatively lower returns,I.e., lower rates of interest.
RBI Bonds
Relationship Managers of Private Banks and the Stockholding Corporation of India both facilitate this. There is a lock in. Presently I think the interest rate is 8.05 percent. It’s a floating rate, linked to certain basis points above the rate of interest on the NSC. if the rate goes up, all the investors gain. And vice Versa. There is no cumulative option, interest is paid half yearly. I repeat, no cumulative option. So it’s only an option to earn interest or then reinvest the interest paid out. It’s the Central Bank. So Safety is guaranteed.
Senior Citizens Scheme
Post Office and Banks have this on offer. An attractive interest rate. An upper limit is there. Recently revised. It’s safe too.
Fixed Deposits
PSU Banks
Govt owned. So the Perceived safety is higher. And naturally. But technically they are at par with all regulated Banks. Rates of interest could be slightly lower than the the private sector.
Large Private Sector Banks.
Too large to fail such as ICICI Bank, HDFC Axis Banks and then we have Kotak Mahindra IndusInd banks etc. Rates of interest change frequently., just keep monitoring the tenure and the rate of interest on offer, normally rates of interest are marginally higher than PSU Banks. They are all part of a formal regulated structure. Don’t really worry.
Old Private Sector Banks
Steady performers. Same as large private sector banks. Can certainly park a reasonable amount. Or else wisdom would be to park funds across two to three banks.
Small Finance Banks
Evolving gradually. Generally pay the highest. Rates of interest. Rs five lakh can safely be deposited per depositor. A higher amount too. If so required. Rs five lakh is the insured amount per depositor with a bank. You can try, you and spouse, spouse and you, singly etc as combinations.
Insurance Cover at Banks
Rs 5 lakh per depositor is covered as insured by the DICGC. At each bank. This is assured. But no worries largely. Even Yes Bank was stabilised. But stick to the larger banks generally. If safety is the primary call. And the perception and feeling to feel comfortable too.
Cooperative Banks
We should know we have State Cooperative Banks and District Coop Banks and Urban Cooperative Banks. It’s the Urban Coop Banks which have failed at times., so you can continue the relationship if there with The Punjab State Coop Bank here. Or the Haryana State Coop Bank. Etc. They also have the DICGC Cover.
Incidentally, Regional Rural Banks, Kshetriya Gramin Banks, such as the Punjab Gramin Bank are also safe and very much ok.
Insurance Companies
Particularly the LIC is aggressive and very much safe. No questions. Even other major insurance companies are generally safe. We have a sound regulator. But the yield, the rate of interest, is generally low. Understand the product fully yourself and then only go ahead. Don’t go by any slick presentation.
NBFCs
A higher rate of interest normally. The Perceived or Assessed Risk is higher and therefore so is the rate of interest. Stick to the real large ones. Say Bajaj Finance, Mahindra Finance, Shriram etc. Stock Holding Corporation at Sector 17 can guide better. They have offices at Panchkula and Mohali too.
Company Deposits
Assess the owners / management and the size of the company and invest. Study this., again the triple AAA rated ones will offer a lower rate of interest. Think and invest a smaller amount.
NCDs
They offer more interest but safety could be an issue. Invest as per your risk profile.
Sovereign Gold Bonds
Inquire at your bank or with the Stockholding Corporation of India. This could be a safe avenue for investing a part amount.
Informal Schemes by friends and associates and Advise by sundry people.
Your own risk. Don’t even think about it normally. Talk only to seasoned registered Financial Advisors. And avoid the glib ones. Do Ask how many recessions and fluctuations they have undergone and their strategy to tackle it. Any Advisor who earns his living by earning commissions could be cajoling you at times to invest in a particular sector or fund or advising to churn your funds, do not take such advise on face value and think and deliberate each time when asked to revise or review. This is particularly for mutual funds or ULIPS etc.
if you feel you do not want to invest in Mutual Funds and ULIPS etc, then don’t. Bonds are good options among mutual funds, specially Gilt Funds but know the interest rate setting. Read yourself on mutual funds, not what junior tells you or a nephew. Or niece. It’s quite in order to park some capital but know each product and the specific fund yourself. Then invest.
Else stick With Deposits. Be comfortable. Only invest in what you know.
A rate of interest plus or around 7.5 percent should do. Normally. After Tax deduction - your yields are low., so try a tenure where you just get that higher interest. Or mix a bit across Small Finance Banks and NBFCs. And do have a nominee always.
Please do open DMAT accounts. This is a must now for ease of investing in Bonds etc such as Sovereign Gold Bonds. But avoid opening DMAT accounts with smaller players, go with organisations backed by major banks generally.
This is Just My perspective. With safety of capital being the core concern. And consult formal investment advisors always if the need is there.
Dinesh K Kapila
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