Orthodox investors generally prefer investing in bank fixed deposit schemes instead of non-bank fixed deposit schemes. But sometimes when the interest rates dip, banks also slash their interest rates accordingly. During these times the investors do fall in a difficult situation and that increases their worries. There are several other alternate options readily available that can curb these worries. These options are in the form of fixed deposit schemes that are being offered by non bank financial institutions at higher rates of interest.
The non-banking financial companies are authorized by the Reserve Bank of India to take money from investors as deposits under fixed deposit schemes and they operate as per the instructions and guidelines laid by the RBI. The investors also need to follow a set of instructions before investing in these schemes in order to protect their own interests.
The term of fixed deposits in the NBFCs range between 12 months to 5 years and people generally prefer investing for short terms under these fixed deposit schemes as the interest rates may vary according to the ratings and the company’s performance. As a result of this insecurity, investors do not invest in these schemes for long periods.
Types of Fixed Deposit Schemes Offered by NBFCs:
Non Banking Financial Companies offer 2 types of fixed deposit schemes and they are Non-cumulative fixed deposit schemes and Cumulative fixed deposit schemes.
In the case of non-cumulative fixed deposits, the company pays off investors the interest accumulated on the principal amount on a periodic basis and this period can be half-year or annual. Thus the interest doesn’t get accumulated and added to the principal. As a result the investors earn superior interests on their investments.
When it comes to cumulative fixed deposit schemes, the interest accumulated gets added to the principal amount invested by the investor and this leads to higher returns on the investment as compared to the non-cumulative plans. The investor gets back the principal amount along with the accumulated interest on maturity of the deposit amount.
Fixed Deposits and Company Ratings:
There are several organisations such as ICRA and CRISIL that rates any non-banking financial company based on their Net Owned Fund or NOF. Along with NOF, these organisations also take into consideration several other factors before rating a NBFC. Certain slabs and ceilings also serve as a criterion for rating a NBFC. For example, a NBFC with NOF exceeding rupees 200 lakhs fall under one category of rating and so on. These ratings help an investor to decide whether they can invest in a particular company or they should refrain themselves.
Rates of Interest:
The rate of interest offered by the non-bank finance companies are much higher than the rate of interest offered by the banking bodies. This is the primary reason behind the fact that investors prefer investing in the company fixed deposit schemes nowadays. The Reserve Bank of India has fixed the maximum rate of interest that can be offered on fixed deposit schemes to 12.5%. This rate of interest may vary from time to time. Before investing their money in fixed deposit schemes of non bank companies, a person must do a thorough research and they should also keep themselves updated in order to avail the best interest rate that is being offered. Currently, the rate of interest that is being offered range between 9% to 12.25%.
Facility of Premature Withdrawal:
Non Bank Fixed Deposit Schemes offer the facility of premature withdrawals to its investors as well unlike the fixed deposit schemes offered by the banks. The minimum period of lock in of the non bank fixed deposit schemes is 3 months. The interest generated and the penalties incurred in these cases are decided by the non bank companies as per the terms and conditions laid down by the company.
Exclusive Benefits of Non Bank Company Fixed Deposit Schemes:
Besides the superior rates of interests as compared to bank fixed deposit schemes, non bank companies offer several facilities and perks in their fixed deposit schemes. A few of them have been elaborated below.
- As mentioned earlier, the interest rates offered are 2% to 3% more than the interest rates offered by bank fixed deposit schemes.
- The non bank fixed deposit schemes are preferable when a person is investing for a short period of time and they lead to higher incomes with high liquidity.
- Nomination facilities are provided by non bank fixed deposit schemes.
- When a person decides about investing in a regular bank fixed deposit scheme, that person has to comply with several complex processes, guidelines and clauses. On the contrary, a non bank fixed deposit scheme is free of all these hassles and their process of application is quite simpler. This encourages the investors to put in more and more money in non bank fixed deposit schemes.
Some of the non bank fixed deposit companies in India include Dewan Housing Finance, Bajaj Capital, Sundaram Finance and Mahindra Finance.