Online FDs with up to 9.5% interest rate on MobiKwik: How can you 'safely' invest in these FDs? It has five FD options to choose from: Unity Small Finance Bank, Suryoday Small Finance Bank, Mahindra Finance, Shriram Finance, and Bajaj Finance. Small finance bank FDs and corporate FDs offer higher interest rates but may carry slightly higher risks. Be sure to read the fine print before investing
MobiKwik just launched a new instant fixed deposit feature with an interest rate of up to 9.5%. The financial services platform has partnered with non-banking financial companies (NBFCs) and small finance banks (SFBs) to offer deposits to its customers. All you need is the MobiKwik app to book a fixed deposit. Sounds exciting, right? After all, who would not want a high interest rate on their fixed deposits, especially one as high as 9.5%? Be careful and read the fine print carefully before you tap on 'invest'.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
Up to 9.5% interest on FDs on MobiKwik: Are these FDs safe?
At present, MobiKwik has five FD options to pick from — Unity Small Finance Banks, Suryoday Small Finance Bank, Mahindra Finance, Shriram Finance and Bajaj Finance. You will get up to 9.5% interest rates on fixed deposits in select small finance banks such as Unity Small Finance Banks and Suryoday Small Finance Bank.Is it safe to invest in FDs offered by small finance banks?
High interest in small finance bank FDs: High risk too?
You may be hesitant to put your money into a fixed deposit with a smaller, less well-known bank like Unity Small Finance Bank instead of a big name like SBI, HDFC Bank, or ICICI Bank. Small finance banks have restrictions on what they can lend out, and they are typically considered riskier than traditional banks. So, customers usually prefer to invest their FDs in the bigger banks. But, to make up for the extra risk and attract investors, small finance banks often offer higher interest rates than private or public sector banks.
FDs in small finance banks regulated by RBI
Small finance banks are regulated by the Reserve Bank of India (RBI), just like other banks. "But assess the financial health and stability of the bank itself and not just go after the highest or increasing rates," says Dev Ashish, a SEBI Registered Investment Advisor and founder of StableInvestor.com. Do research on the bank's credibility and reputation in the market to ensure that your investment is safe. You can also check the bank's credit rating to gauge the level of risk associated with investing in its fixed deposit.Up to Rs 5 lakh deposit insurance cover
Deposits opened with small finance banks are protected by the deposit insurance program to the tune of Rs 5 lakh. However, it includes both the principal and interest amounts. So, if you are considering a cumulative fixed deposit with a small finance bank, make sure the total amount will be less than or equal to Rs 5 lakh when your deposit matures.
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How to 'safely' invest in small finance bank FDs
"Do not overexpose yourself to small finance bank deposits," says Vishal Dhawan, a CFP and founder of Plan Ahead Wealth Advisors. Don't put all your money into an FD in a small finance bank just because it is offering a high interest rate. If you have set aside a total fund for FDs, do not invest more than 30-40% in FDs of small finance banks, said experts.Mahindra Finance, Shriram Finance, and Bajaj Finance FDs offer high interest rates on MobiKwik: Key things to check before you invest
Three other fixed deposits offered by MobiKwik — Mahindra Finance, Shriram Finance and Bajaj Finance — are fixed deposits offered by NBFCs, not small finance banks. These are corporate FDs or company FDs. They also offer attractive interest rates — you can earn up to 8.1% interest on Mahindra Finance FDs while Shriram Finance offers up to 8.80% on FDs. You will get up to 8.4% interest on Bajaj Finance FDs.Corporate FDs carry higher risks than bank FDs as they are typically unsecured and uninsured.
One of the main benefits of bank fixed deposits is the deposit insurance that protects the investor's money —principal along with interest of up to Rs 5 lakh, reducing the risk of losing money if the bank fails. Corporate FDs are not insured. So if the company goes bankrupt, you will lose your entire investment.
So it is very important to check how safe the company is before you put your hard-earned money in corporate FDs.
Want to invest in corporate FDs? Check credit ratings
Start with checking the credit ratings of corporate FDs. Most of the companies prominently display the rating for their deposits on their websites. If you want the safest corporate FD, then you should look for a triple-A (AAA) rated company. In AA and A-rated company FDs, the likelihood of a default is very low. A quick glance at the website of Mahindra Finance or Shriram Finance will tell you about their credit ratings.Mahindra Finance: CRISIL AAA/Stable, IND AAA/Stable'
Shriram Finance: CRISIL AAA/Stable, IND AAA/Stable'
Bajaj Finance: CRISIL AAA/Stable, ICRA AAA/Stable
"Anything below AAA entails a certain degree of risk-taking and requires a careful evaluation of whether the incremental short-term returns are worth it," says Aniruddha Bose, Chief Business Officer, FinEdge. Crisil, ICRA, Fitch, India Ratings and CARE are agencies that do most of the ratings. You can look at their websites as well.
Moreover, corporate FDs are not as liquid as traditional bank FDs. Most companies usually follow stringent premature withdrawal rules and a steep penalty. The penalty amount to withdraw money prematurely from corporate deposits is typically higher than what banks usually charge. It often depends on the company's discretion whether they allow premature withdrawal of funds or not. So, it is important to understand the liquidity options and rules of the company before investing in the corporate FD.
Lastly, remember the basic thumb rules of investments while putting money in FDs. Don't put all your money in one company FD or small finance bank FD, thinking it will generate high returns. "You should avoid investing all your savings in a single company’s FD since diversification can help you mitigate your risk while maintaining the stability of your earnings," says Raghvendra Nath, MD, Ladderup Wealth Management.
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This story originally appeared on: India Times - Author:Faqs of Insurances
