People investing in bank FDs, company deposit schemes

In the past most people preferred to invest in equity market for long term gain but it as been around two years that there has been instability in the equity market which has forced investors to look for safer investment instruments such as fixed deposits. Fixed deposits provide guaranteed safety of money but the returns are lower. Again the interest rates on fixed deposit are rising after the Reserve Bank of India tightened policy rates and banks are raising rates on fixed deposit schemes to garner more low-cost retail deposits.

Most of the big commercial banks such as SBI, ICICI Bank, Axis Bank, HDFC Bank, etc have raised rates on fixed deposits by 50 to 75 basis points. According to marker experts the rates are expected to rise further as liquidity gets tighter and credit growth picks up.

Even the leading non-banking finance companies (NBFCs), such as Shriram Finance and Dewan Housing Finance Company, have also started raising retail fixed deposits interest rates – up to 2 per cent higher than rates offered by banks. Shriram Transport’s fixed deposit scheme, called Shriram Unnati Fixed Deposit, is offering 8.75 per cent per annum interest for a year. Minimum investment requirement under this scheme is Rs 25,000 and the last date of scheme is August 31. Another company Dewan Housing is offering 9 per cent interest on fixed deposits of 1-year tenure.

While most of the banks are offering 5.5 per cent of interest for 3 to 6 months, 6.5 per cent on deposits for 6 months to 1 year and 7.25 per cent for above 1 year.

NS Srinath, executive director (retail) at Bank of Baroda, told Financial Chronicle that the interest rates will move up further. He said, “I see interest rates stabilizing at this level or go up a little. A fixed deposit is definitely a good investment instrument in the short and medium terms. With the volatility in the equity market, fixed deposits in the range of one year is a good bet. It is little premature to say if interest rate hike has led to growth in our deposits. But we have a target of 22 per cent year-on-year growth in deposits.”

According to wealth adviser and certified financial planner, Gaurav Mashruwala, except FD there is no other investment instrument that can give you guaranteed returns. He said, “Equity investment is risky in the short term, but it offers good gains in long run. While FD is a safe bet for short term, there is no return in the longer term.”

Mashruwala say FD is the best investment option for investors in the low or middle tax brackets, mainly falling in the 10 to 20 per cent brackets.

Kartik Jhaveri, a certified financial planner said corporate fixed deposits are safe and very little risk is involved in them also most of the companies are offering good rates.