Fixed deposits in NBFCs

While equities are the most promising investment today, Fixed Deposits should also have a place in one’s portfolio as it provides higher safety and some form of liquidity. 

We have been keeping around 10% of our investments in FDs for a couple of years. However, it becomes quite challenging to select a suitable provider as the FD rates vary about 2-3% across them.

After searching through available banks and NBFCs(Non-Banking Financial Companies), we chose Mahindra & Mahindra Financial Services Limited(MMFSL) to create new FDs due to the below factors:

• FD interest rates of 9.00% (earlier 8.75%) for the tenure of 33/40 months.
• Highest rating(FAAA/Stable) from Crisil
• Online application, deposit and KYC process. Completely paperless.
• ‘Mahindra & Mahindra’ is the parent company of MMFSL, a trusted and big name in India.

Even after income tax deduction(30% slab) on the returns, the returns from FD are around 6% which is still better compared to going for FDs providing interest below 8%.

Similar to MMFSL, Bajaj Finserv is another big name in NBFC. They are backed by the Bajaj group and their FDs have the same Crisil rating like MMFSL.

Note: We have created the FDs in September 2018 and yet to receive the 1st payment of quarterly interest. Will update this post once that happens.

Update(Oct 1st): The customer service of MMFSL is not up to the mark. I opened the FD on 9th September and got the e-receipt on 1st October after many rounds of follow-ups. They don’t have a direct line to customer care and 90% calls get unanswered.

Update(Oct 24th): MMFSL has increased the FD interest rate to 9% for a tenure of 33/40 months.

Update(May 30, 2019): While filing ITR for FY 2018-19, we found out that TDS for FDs in NBFCs is charged if interest amount exceeds Rs. 5,000.

Update(January 2021): Our FDs have matured and amount was credited in the bank account on time. The whole experience with the FDs was great. However, now the interest rates have fallen to below 7% so we haven't renewed the FDs.

Which banks/NBFCs do you prefer for Fixed Deposits? Please share in the comment section.