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This Govt. Company Offers Fixed Deposits With Monthly Compounding, Good To Invest
The Kerala State backed, Kerala Transport Development Finance Corporation is offering fixed deposits with monthly compounding thus boosting yields for investors.
What is compounding?
Actually, if you are an investor who invests in cumulative deposits, you should not look at interest rates, but, actually look at yields. Let us explain. Banks generally compound interest every quarter. So, if you invest Rs 1 lakhs at 10% interest, after the first quarter you would receive Rs 2,500 as interest, which is added back to the principle amount and 10%, starts getting calculated in the second quarter on Rs 102500, in place of 1,00,000. This goes on for each of the quarters. Thus earlier you compound the better is your overall yields. You don't find institutions or banks these days compounding interest every quarter, some schemes of the post office compound interest every year.
KTDFC Fixed Deposits compound every month
Under the money multiplier scheme of KTDFC the interest is compounded every quarter, which means over a longer tenure of 3 to 5 years, it can really can boost your yields.
Interest on KTDFC Deposits
| Interest rates Individuals | Interest rates Senior citizens | |
|---|---|---|
| 12-months | 6.00% | 6.25% |
| 24-months | 6.00% | 6.25% |
| 36-months | 6.00% | 6.25% |
The interest rates are marginally better than banks, but, because of the monthly compounding the yields too might have a slight edge. For example, the yields on the 5-year deposits for senior citizens could go as high as 7%.
High on safety, but interest rates could have been better
The deposits are not the very best when it is comes to government owned companies, because TN Power Finance and Infrastructure, a Tamil Nadu based enterprise offers interest rates as high as 8% for individuals and 8.5% for senior citizens.
Having said that the interest rates are much better when compared to government owned banks like State Bank of India, PNB and Bank of Baroda, where one can get a maximum of 5.5% interest and that too with quarterly compounding. This is why we are saying that are good deposits, but, not the best.
KTDFC, is a government of Kerala backed enterprise and the deposits up to Rs 4,500 crores are guaranteed by the state. As far as safety is concerned, we do not see any problems. In fact, we had personally invested in these deposits and did not see any service related issues as well.
Park money for the short to medium term in FDs
We are telling investors not to invest in fixed deposits for a very long term tenure, as there are hopes that interest rates would reduce in the medium term. We believe that there is a possibility that at some stage the Reserve Bank of India would hike interest rates, keeping in mind the fact that inflation would rise. Therefore, one can invest for the more short term duration.
At the moment for investors in fixed deposits, there are not too many options. With interest rates at historic lows, it's hard to get decent returns. Investors have now left aside FDs and begun parking money in stocks, because of the poor yields. The trend of poor yields will continue at least for the next 1-year as credit momentum picks-up and banks hike deposit interest rates once again.
