Fixed deposits have proven to be one of the most popular investment options with many generations of Indian investors. This is mostly because of the safety they offer, but also because of guaranteed returns and tax benefits.
When you look into investing in FDs, you’ll notice that they are issued by both banks and NBFCs. However, NBFCs offer higher FD interest rates than banks. Read on to know why.
Why do NBFCs offer higher FD interest rates than banks?
NBFCs get 10–15% of their funding from retail deposits, 40–50% from banks, and the balance from debt capital markets. This helps them achieve diversification of funding.
While raising funds from debt capital markets and banks is more affordable for NBFCs, public deposits help them build a relationship with their customers and cancel out the risk that capital markets carry.
Also, while capital markets became a reliable, consistent source of finance post-demonetization, liquidity has once again gone down, making them more expensive than paying interest on Fixed deposits in some cases. As a result, NBFCs are keener on inviting public deposits. In a bid to attract more investors, NBFCs have been more inclined to offer higher FD interest rates than banks.
That said, it is important to not invest simply on the basis of this. To ensure that your investment is 100% safe and secure, looking into other aspects such as the ones listed below is equally important.
Check CRISIL/ICRA ratings
When investing in FDs, looking for higher FD interest rates is desirable but checking for good CRISIL/ICRA ratings is just as necessary. CRISIL and ICRA are renowned credit rating agencies that rate financial products offered by various institutions including banks and NBFCs based on how safe they are. They take into consideration a number of parameters before arriving at a decision.
CRISIL rates FDs by NBFCs with a tenor of more than a year based on a scale ranging from FAAA to FD. This is done on the basis of various factors such as the issuer’s debt repayment capacity, fund holding, and credibility. Basis its findings, it awards one of the following ratings to the FD so you can ascertain its reliability before investing.
1. FAAA means the highest safety
2. FAA means high safety
3. FA means adequate safety
4. FB means inadequate safety
5. FC means high risk
6. FD means default
7. NM means not meaningful
When you invest with Bajaj Finance’s Fixed Deposit, you can enjoy the highest ICRA and CRISIL ratings. Moreover, you can earn up to 8.75% on a cumulative FD of at least 36 months and senior citizens can earn up to 9.10%. Also, you can opt for a tenor of your choice and invest online in minutes!
Check the track record of the company, reviews, and customer service
When you invest, you hand over a portion of your hard-earned money to the issuer. So, before investing in an FD, make sure to conduct a background check. Start by examining the track record of the issuer online. Read reviews from customers and look into the customer service extended to investors. You may explore their website and also go through customer review portals to get a true picture.
The next time you decide to invest, ensure that you’re not skimming over the CRISIL, ICRA, or CARE rating. Make it a point to understand what it signifies, evaluate the risks involved, and only then invest in FDs.