Invest in Credit Risk Mutual Fund or not?

A fixed deposit (FD) is one of the safest avenues of investment and is much sought after by a large section of the population, mostly senior citizens. It offers a fixed return for a given tenure. It is a preferred investment option for those who are not much familiar with market-based returns, or don’t have the appetite for risk.

In the past few years many private and public sector banks have lowered interest rates on fixed deposits. Therefore, it is all the more important for a depositor to check interest rates offered by different financial institutions before any investment. Rates of interest varies from bank to bank.

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If you are planning to invest for five years, here is a list of four small finance banks where the general public can get up to 6.75% rate and senior citizens up to 7.25%.

State Bank of India, the country’s largest lender, is offering 5.30% for general customers and 5.80% for senior citizens on the same tenure. The largest private sector bank, HDFC Bank, also offers the same interest rate on FDs on more than three years to five years tenure.

Best rates

Ujjivan Small Finance Bank is offering an attractive rate of 6.75% for the general public and 7.25% for senior citizens on FDs of tenures more than three years to five years.

Jana Small Finance Bank is offering 6.50% interest on the five-year FD for general public and 7% for senior citizens, whereas the interest rate in Suryoday Small Finance Bank is 6.25% and 6.50% per annum, respectively for the same tenure.

On the other hand, North East Small Finance Bank, offers 6.50% interest rate to the general public and 7% to senior citizens on FD’s tenure of 1,096 days to less than 1,825 days.

Small finance banks

The Union budget of 2014-15 first announced the policy that a special category of small finance banks would be set up. The basic objective was furthering financial inclusion through serving banking activities to un-served and underserved sections of the society.

SFBs are regulated by the RBI and follow compliance norms similar to normal commercial banks. They give a minimum of 75% of their loans to the priority sector. The very fact that these banks do not have very big loan exposures to a single corporate group seems to be one of the factors that increase their security.

Small finance banks can undertake all basic banking activities including lending and taking deposits.

However, some investment advisers do not recommend that one should put all their money in SFBs. However, deposits in SFBs are also insured like those n normal commercial banks to the extent of Rs 5 lakh.