Mahindra Finance FD – High returns of 12.21% p.a. – How far this is true?
Mahindra Finance FD advertisement is appearing in almost all investment websites which shows that effective yield is 12.21% p.a. How far this is true? What are the features of Mahindra Finance FD and what are the risks?
About Mahindra Finance
Mahindra Finance i.e. Mahindra and Mahindra Financial services Ltd is part of Mahindra Group. It provides vehicle loans, personal loans, home loans and SME loans in urban and rural areas.
About Mahindra Finance FD
It is not new that Mahindra Finance is offering FD schemes. However with its current advertisement campaigns, it has catched the attention of several investors.
Features of Mahindra Finance FD
1) Mahindra finance is offering FD in cumulative and non-cumulative options.
Cumulative option: Under this option, an investor would get interest on maturity along with principal. The interest is compounded annually and would get re-invested. The effective yield would be high and would be paid at maturity.
Non cumulative option: Under this option, investor can choose to get interest amount either by every quarter or by every half year. If an investor is choosing to get interest every quarter, the interest would get credited to their bank account by 30-Jun, 30-Sep, 31-Dec and 31-Mar. If they are opting for half year interest, the interest would be paid on 30-Sep and 31-Mar.
2) Senior citizens would get 0.25% higher interest rate p.a. comparing to others. The interest rate indicated on all advertisements saying 'high return of 12.21% p.a.' is for Senior citizens for 5 years period with cumulative option.
3) Mahindra group employees would get 0.35% p.a. additional interest comparing to others.
4) Mahindra Finance FD is rated by Crisil research as FAAA which indicates high level of safety.
Interest rates are enclosed below
How about company financials?
Company fixed deposit schemes are always risky as it depends upon the company financials too.
The revenues in the last 3 years have grown at an average rate of 27%. Last financial year the revenues grown at 39% (FY 2011-12) which shows a healthy growth.
The profitability in the last 3 years is in between 22% to 23%. Last financial year profitability is around 22%. This shows the stability of the profit numbers.
The repayment is also a factor to be looked into. Since the interest is paid through ECS in bank directly for non cumulative option and have not heard about any payments defaulted, we do not see any challenges as of now.
Conclusion: In my opinion, Mahindra Finance FD is a best investment plan considering the good returns and higher Crisil research rating. Instead of investing a big amount in this, you can diversify and invest part of your investments in such fixed deposit schemes.
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Mahindra Finance FD Review