Opportunity to get up to 7.75% rate of interest on AAA rated FD: Should you invest?

Rate hike by the RBI has given much-needed respite to risk-averse investors as interest rates offered on fixed-income instruments are now increasing.

fixed deposit, FD, rate hike, RBI, Bajaj Financial fixed deposit, AAA rated FD
Along with banks, companies are also offering higher rates of interest on their Fixed Deposits.

Rate hike by the Reserve Bank of India (RBI) may have made home, auto and other loans costly, but it has given much-needed respite to risk-averse investors as interest rates offered on fixed-income instruments are also increasing.

Along with banks, companies are also offering higher rates of interest on their Fixed Deposits (FDs), which help the conservative investors in tackling inflation.

Going by the trend, Bajaj Finance has hiked the rates on its FDs up to 7.75 per cent for senior citizens and 7.5 per cent for investors below 60 years of age. The highest rate is offered on the FDs with a tenure of 44 months (that is 3 years and 7 months).

Not only Bajaj Finance is offering a lucrative rate of interest on its FDs, but has also got a high safety rating of AAA/STABLE from CRISIL and AAA(Stable) rating from ICRA.

Should you invest?

The investment decision will definitely depend on your risk appetite and your capacity to take risk.

Here are some of the prose and cons of investing in this FD:

Benefits

For the risk-averse investors, the benefits of investing in Bajaj Finance FDs are:

Safety

Bajaj Finance is a well known brand and with AAA/STABLE from CRISIL and AAA(Stable) rating from ICRA the investment looks quite safe.

So, the investors who can’t take or are reluctant to take risks, Bajaj Finance FD provides an attractive option.

Attractive rates

The FD provides 6.20 per cent interest on a tenure of 12 months, 6.95 per cent for 24 months, 7.15 per cent for 33 months, 7.50 per cent for 44 months and 7.40 per cent for 60 months. Senior citizens get an additional rate of 0.25 per cent over the rate of interest offered to the investors below 60 years of age.

So, compared to the rates offered by the banks, NBFCs and companies on FDs, Bajaj Finance FD rates are among the top.

Drawbacks

The Bajaj Finance FD, however, has some drawbacks:

Credit Risk

Despite good credit ratings, there are instances of defaults, where companies fail to honour their commitments. So, investors should keep the risk factor in mind.

Inflation Inefficiency

With the rate of retail inflation (CPI) hovering around 7 per cent and wholesale inflation (WPI) over as much as 13 per cent, investors would lose the purchasing power of the capital invested especially after paying tax on the interest earned.

So, for risk takers, Bajaj Finance FD doesn’t look as an ideal choice.

Conclusion

If you are a risk-averse investor or are not in position to take much risks, you may invest in this FD, provided you are in a low tax bracket or your income is not taxable.

(Disclaimer: Consult your financial advisor before taking any decision to invest.)

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