NBFC or Bank, which should you choose?
A bank is a financial intermediary that focuses on providing banking facilities to the public under established rules and guidelines. Banks are registered under the Banking Regulation Act of 1949. A non-banking financial company (NBFC) on the other hand, also provides banking facilities to the public, but does not possess a banking license; rather, it is registered under the Companies Act 1956. Some major points of distinction between banks and NBFCs are:
- Demand deposit: A bank can accept demand deposits from its customer, whereas an NBFC is not allowed to do so except with specific approval from the RBI. Demand deposits allow a customer to withdraw funds whenever he wants.
- Lending rates: Bank lending rate policies are decided by RBI guidelines. They can keep the rates floating as well, whereas NBFC lending rates do not fall under the remit of the RBI. Their rates are prime lending rates. NBFC lending rates remain open for negotiation, which can be done based on the financial books of the borrower.
- Flexibility: Banks have to follow the guidelines laid down by the RBI, and they cannot do away with any of these requirements. Borrowing with banks involves a lot of paperwork and a comparatively higher time for loan sanction, whereas NBFCs are more flexible with paperwork and have slower processing times.
- Fixed Deposit Rationale: Investors in India have always picked fixed deposits as the first step when building their investment portfolio. The rationale behind investing in fixed deposits is lower risk and assured returns. When an investor plans to build a corpus or make a one-time investment for achieving some future goals/plans, a fixed deposit is the investment tool of choice.
Fixed deposits are often chosen as investment options among senior citizens. The lower risk profile of the investment vehicle suits senior citizens' and retirees' risk appetites. Additionally, the companies also offer senior citizens a higher rate of interest on their FD.
Fixed deposits in banks versus NBFCs:
The COVID-19 pandemic has shaken even the strongest economies across the world. The current monetary policy has driven the interest rates into lower territories, and inflation in the country is inching towards 7%. If one considers the cumulative effects of inflation and monetary policy, the real rate of return (inflation-adjusted returns) will soon be on the negative side. Therefore, investors will have to reconsider the FDs offered by the banks.
Still, there are FDs with NBFCs that offer a higher return. An established NBFC with a proven record is the solution in the current economic scenario. Many NBFCs have done well in their respective domains.
How to pick the right NBFC for a fixed deposit?
- Experience: To pick an NBFC for an FD, one of the major factors to consider is the experience that the NBFC has in the market. A trusted NBFC with a longer tenure of existence will always be a better choice.
- Security: The most significant advantage while choosing an FD scheme is the assured return at maturity. This feature makes FD schemes the popular choice among the investor community. NBFCs that have a trusted business operation and good ratings are a better choice for investment.
- Flexibility: Fixed deposits are accessible to everyone and should be flexible. The greater the flexibility of the FD schemes, the better the plan. A non-cumulative FD should have a monthly payout structure, and a cumulative FD should have a monthly compounding function.
- Rate of return: The rate of return should be such that it makes a viable investment proposition, and when the NBFC has a solid standing in the market and good ratings, the rates should be higher when compared to peers.
- Ratings: When opting for NBFC FD schemes, ratings play a very crucial role. Rating agencies keep track of company performance and grade them, making it easier to assess their stability and security.
To choose a better alternative, we should also consider NBFC cumulative fixed deposits and NBFC non-cumulative fixed deposit schemes.
Which NBFC is best for fixed deposits in 2021?
After considering all the relevant factors, we can say that the Shriram Group FD has all the characteristics that make it a very competitive NBFC FD provider in the year 2021. The company has immense experience; it has flexibility of tenures of the FD, one of the highest rates of return, Shriram fixed deposit is accredited with [ICRA]AA+ (Stable)” by ICRA and "IND AA+/Stable" by India Ratings and Research. Compounding of interest is done on a monthly basis on Shriram Finance FD schemes.
Shriram Finance has leveraged technological innovation in its operations. They have embraced digital transformation and have specialized teams to focus on the integration of AI in different verticals of the business. Shriram Finance aims to provide the highest degree of care to clients, driven by transparency and detail-oriented service.
Shriram Finance FD schemes:
Shriram Finance FD schemes offer customers absolute clarity, with calculators and FD scheme structures carefully explained on the webpage.
Shriram Finance offers two types of FD schemes:
1. Cumulative scheme: If an individual aims to build a corpus in the longer run, a cumulative fixed deposit is a better investment option. Here the principle of compounding is applied, interest earned from the deposit is added to the original sum, and the customer gets additional interest. The interest earned here is not paid out during the investment tenure. At maturity, the cumulative interest and principal are paid to the customer.
2. Non-cumulative scheme: This scheme is suitable for a customer who wishes to add a regular flow of income to their existing system. Here the interest is paid to the customer at regular intervals depending on the chosen scheme particulars. Interest payment intervals are monthly, quarterly, half-yearly and yearly.
Senior citizen FD schemes
For senior citizens, FDs have always been the most lucrative investment vehicle. With Shriram Finance, senior citizens get an additional 0.50%* p.a. interest on their investment.. Investment opportunities with higher interest and flexible cumulative and non-cumulative schemes make Shriram Finance FD schemes a very desirable addition to the senior citizens' portfolio.
Shriram Finance FD schemes are easily accessible to anyone. You can simply log on to the website and view different combinations to help you make a sound decision. Shriram Group follows its mission and vision to the core. This is reflected in the way FD schemes are tailored, along with the prompt delivery of the FD contract.