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In today’s financial landscape, investors in India are on the lookout for ways to make their money work harder. One option that’s gaining traction is Fixed Deposits (FDs) offered by Non-Banking Financial Companies (NBFCs). Let’s understand what NBFC FDs are and how they stack up against traditional bank FDs.
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What are NBFC FDs?
NBFC FDs are fixed deposits offered by Non-Banking Financial Companies. These are financial institutions that provide banking services but don’t hold a banking licence. Unlike banks, NBFCs can’t accept demand deposits or issue cheques drawn on themselves.
The main draw of NBFC FDs? Well…they often offer higher interest rates compared to bank FDs. This is because NBFCs typically have higher operational costs and need to attract deposits to fund their lending activities.
Factors Affecting NBFC FD Rates
Several factors influence the NBFC Fd rate:
- Market conditions
The overall financial climate and market movements play a significant role
- Deposit tenure
Generally, longer tenures offer higher rates
- RBI policies
Changes in the repo rate by the Reserve Bank of India can affect FD rates
- Credit ratings
NBFCs with higher credit ratings from agencies like CRISIL or ICRA often offer lower rates due to their perceived stability
- Investor profile
Some NBFCs offer higher rates to senior citizens
- FD type
Cumulative or non-cumulative options may have different rates
NBFC FD Rates: A Snapshot
As of 2024, here’s a quick look at some of the competitive rates offered by top NBFCs:
- Bajaj Finance: Up to 8.65% for a 2-year FD
- Mahindra Finance: 7.50%-8.10% for 1-5 year FDs
- Aditya Birla Capital: 6.70%-7.50% for 1-5 year FDs
- Unity Small Finance Bank: Up to 9% for a 1001-day FD
Remember, these rates are subject to change, so it’s wise to check the latest offerings before making a decision.
NBFC vs Bank FD Rates: How Do They Compare?
On an average, NBFCs offer 1-2% higher interest rates than banks. While top nationalised banks typically offer 5-6% per annum, and private banks go up to 6-6.50% per annum, some NBFCs like Bajaj Finance offer rates as high as 8.65% per annum.
A Special Note for Senior Citizens
Both banks and NBFCs often provide an additional 0.50% interest rate for senior citizens. Some institutions even offer an extra 0.20-0.30% under special FD schemes. This means senior citizens can potentially earn over 7% per annum with select private banks and small finance banks.
What to Consider When Choosing an NBFC FD
While higher rates are attractive, there are other factors to keep in mind:
- Credit rating
Check the NBFC’s credit rating. A higher rating suggests lower risk
- Tenure
Longer tenures usually offer higher rates but mean your money is locked in for a longer period
- Minimum deposit
Some NBFCs have higher minimum deposit requirements
- Liquidity
Look into premature withdrawal options and penalties
How to Book an FD Online
Many NBFCs now offer the convenience of booking FDs online. Here’s a general process:
1. Visit the NBFC’s official website
2. Look for the ‘Fixed Deposit’ or ‘Investments’ section
3. Choose the FD scheme that suits your needs
4. Fill in your personal and bank details
5. Complete the KYC process (if not already done)
6. Make the payment online
This process makes it easy to compare rates and book FD online from the comfort of your home.
Conclusion
NBFC FDs can be an attractive option for investors looking for higher returns. However, it’s crucial to balance the higher returns with the associated risks. Always consider your financial goals, risk appetite, and the credibility of the NBFC before investing.
Remember, diversification is key in any investment strategy. While NBFC FDs can form a part of your portfolio, it’s wise not to put all your eggs in one basket. Consider a mix of investment options to create a balanced and robust financial plan.
Lastly, stay informed about the latest rates and offers. The financial landscape is dynamic, and what’s best today might not be the most suitable option tomorrow. Happy investing!
