I WANT TO KEEP MONEY IN FIXED DEPOSIT OF SRIRAM FINANCE LTD
Ans: Investing in a fixed deposit (FD) can be a wise choice, especially if you're looking for a safe and stable return on your investment. Shriram Finance Ltd. offers attractive interest rates on their fixed deposits, which might be why you're considering this option.
Let's go through some important points to consider before making this decision.
Safety and Security
Credit Rating:
Check the credit rating of Shriram Finance Ltd. before investing.
Higher-rated FDs are safer as they have a lower risk of default.
Regulatory Framework:
Shriram Finance Ltd. operates under the regulations of the Reserve Bank of India (RBI).
This adds a layer of security, but it’s still essential to review their financial stability.
Interest Rates and Tenure
Competitive Interest Rates:
Shriram Finance often provides competitive interest rates, higher than many bank FDs.
Higher rates can lead to better returns, but ensure the difference is significant enough to justify choosing them over traditional banks.
Tenure Options:
You can choose from various tenure options, typically ranging from 1 to 5 years.
Align the tenure with your financial goals. For instance, if you need liquidity within 3 years, opt for a shorter tenure.
Liquidity and Premature Withdrawal
Lock-in Period:
Fixed deposits usually have a lock-in period. If you withdraw before maturity, you may incur penalties.
Ensure you won’t need the funds urgently before the FD matures.
Premature Withdrawal:
Understand the terms of premature withdrawal, including penalties and reduced interest rates.
This feature is essential if you might need the funds before the FD's maturity.
Benefits of Shriram Finance Fixed Deposits
Cumulative and Non-Cumulative Options:
Choose between cumulative (interest is compounded and paid at maturity) or non-cumulative (interest paid periodically) options.
Select the option that best suits your financial needs. Non-cumulative FDs can provide regular income, while cumulative FDs are better for long-term growth.
Higher Interest Rates for Senior Citizens:
Shriram Finance typically offers higher interest rates for senior citizens.
If you or your spouse is a senior citizen, this can be a great advantage.
Tax Implications
Tax Deducted at Source (TDS):
Interest earned on FDs is taxable. If the interest exceeds Rs. 40,000 in a financial year, TDS will be deducted.
You can submit Form 15G/H if you're eligible to avoid TDS deduction.
Taxable Income:
Include the interest income from the FD in your annual tax returns.
Consider your tax slab while investing, as the post-tax returns might be lower than expected.
Risk Considerations
Company Risk:
Unlike bank FDs, which are insured up to Rs. 5 lakhs, corporate FDs like those offered by Shriram Finance carry more risk.
Assess whether the slightly higher interest rate compensates for this increased risk.
Market Conditions:
Keep in mind that economic downturns can affect the financial health of non-banking financial companies (NBFCs) like Shriram Finance.
Stay informed about the company’s financial performance.
Diversification Strategy
Avoid Concentration Risk:
Don’t invest all your money in a single FD or with one company.
Diversify your investments across different asset classes and financial institutions to minimize risk.
Consider a Bouquet of FDs:
If you decide to invest with Shriram Finance, consider splitting the amount across multiple FDs with different tenures.
This strategy can help manage liquidity needs and interest rate risks.
Final Insights
Investing in a fixed deposit with Shriram Finance Ltd. can be a good option if you seek higher interest rates and are comfortable with the associated risks. However, always assess your risk tolerance and liquidity needs before committing. Diversify your investments and stay informed about the financial health of the institution.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
