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Spot check: HDFC's systematic savings plan
Spot check: HDFC's systematic savings plan
| Last week, housing finance major HDFC introduced a recurring deposit scheme that comes with a variable interest rate structure. Termed systematic Industry watchers and analysts are of the opinion that interest rates will move northwards in the near future, as RBI feels obliged to take measures to control the rising inflation. Many depositors, therefore, are wary of locking in their money in deposits of longer tenure, lest they lose out on the opportunity to tap higher interest rates later. This rationale is also reflected in the tendency amongst depositors to withdraw their deposits prematurely as interest rates start inching upwards. This product, thus, could act as an antidote to both; since the rates on offer will be revised upwards as the interest rates trudge higher, the depositor need not be concerned about earning less vis-à-vis the prevalent market rates. Moreover, SSP may also find takers in investors unnerved by the recent volatility in the stock market, as they seek comfort in the relatively stable returns offered by this scheme. Also, according to the mortgage lender, any revision in the deposit rate will apply to existing depositors of matching tenure, ensuring uniform rate for old as well as new investors. On the flipside, depositors may have to take a hit when interest rates see a fall. If you are of the view that interest rates will not go up substantially from here, you might not want to get into a floating rate product. In such a case, you could consider other banks' recurring deposit schemes. For instance, SBI offers a rate of interest of 6.5% per annum for tenures of 2-5 years. Besides, the minimum maturity period and instalment is just 12 months and Rs 100, respectively. Short-term debt funds can be said to be the closest possible comparable product, as they too look at capturing interest movements in the near term. However, the point to be noted here is that such funds are ideal for short-term investments ranging from 6-12 months, whereas SSP prescribes a minimum tenure of 24 months. Also, while mutual funds cannot guarantee, HDFC is a triple A-rated company and guarantees returns as per the declared rate. The former, however, scores over HDFC's scheme in terms of post-tax returns. While the interest earned on the SSP will be added to the depositor's income and taxed as per the slab applicable, returns are unlike debt funds which are subject to capital gains tax. If units are sold after being held for more than 12 months, the profits, if any, are taxed at the lower of 20% after factoring in the indexation benefit, or at 10% without indexation benefit. Why invest: Since interest rates are expected to go up in the coming months, the rate of return on SSP could increase in tandem. Why not to invest: May not be suitable for those looking for stable returns throughout the tenure, as rates could be reset to mirror the low interest rate cycle. Source: Economic Times Regards http://www.InvestmentKit.com |
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