[gypsyFreak]

All, just wanted to understand how safe is it invest in FDs of Small Finance Banks (SFB) for an amount of 10 lakhs?
There are quite a few banks who offer very high interest rates (upto 9%).

[shipnil]

Originally Posted by gypsyFreak

All, just wanted to understand how safe is it invest in FDs of Small Finance Banks (SFB) for an amount of 10 lakhs?


Attachment 2678865

Limit the amount to 5 lakhs, per bank, assuming you are going to do it in your name. Ensure the bank/deposit is covered by DICGC.

[hothatchaway]

Originally Posted by gypsyFreak

All, just wanted to understand how safe is it invest in FDs of Small Finance Banks (SFB) for an amount of 10 lakhs?
There are quite a few banks who offer very high interest rates (upto 9%).

Attachment 2678865

You must understand that the higher rate offered reflects riskier debtors that the bank will lend your money to. The leading private banks are already offering 7.1%. This translates to roughly 20k more on a principal of ten lakhs. Is it worth risking the principal amount for another twenty thousand? Its a call you will have to take

[gypsyFreak]

Originally Posted by hothatchaway

You must understand that the higher rate offered reflects riskier debtors that the bank will lend your money to. The leading private banks are already offering 7.1%. This translates to roughly 20k more on a principal of ten lakhs. Is it worth risking the principal amount for another twenty thousand? Its a call you will have to take

Yes, the private banks offer upto 7.4 (Kotak) and Nationalised banks a little less (SBI - 7.25). I have already invested in these banks.

Your point is very valid, that's what even i am worried about, hence this question.
I am thinking of making small investments for a small duration. (5 lakhs for 6 months.??). But still feel uncomfortable for 5 lakhs, hence seeking opinions.

[Ananthang]

Reopening an Old thread.

Are FDs in small finance banks (like Utkarsh, Ujjivan) safe. I read it is backed by RBIs insurance policy of 5L per PAN.
I may use up to 5L. Please help on your thoughts.

This is for my In laws money so I want to be careful on what I choose for them.

[Capri89]

I had/have invested in 4-5 of them for the last 5 years.
As suggested limit 5 L to one bank.

Most of their lending is in the micro finance space. So per item exposure for them will be small unlike banks which lend to corporates.

[warrioraks]

Originally Posted by Ananthang

Reopening an Old thread.

Are FDs in small finance banks (like Utkarsh, Ujjivan) safe. I read it is backed by RBIs insurance policy of 5L per PAN.
I may use up to 5L. Please help on your thoughts.

It's safe. Have experienced multiple small finance banks over the last 3 years. Works very similar to the larger banks. Stay under 5 lakhs like you mentioned.

[gypsyFreak]

Originally Posted by Ananthang

Reopening an Old thread.

Are FDs in small finance banks (like Utkarsh, Ujjivan) safe. I read it is backed by RBIs insurance policy of 5L per PAN.
I may use up to 5L. Please help on your thoughts.

This is for my In laws money so I want to be careful on what I choose for them.

I too am in the same doubt, just 1 post above

I am thinking of going ahead with 5 L in 2-3 banks, having digital FD option. Mainly because i should be able to withdraw the amount if i feel uncomfortable.

Let me know if you have gathered any other information.

[Ananthang]

Originally Posted by gypsyFreak

I too am in the same doubt, just 1 post above

I am thinking of going ahead with 5 L in 2-3 banks, having digital FD option. Mainly because i should be able to withdraw the amount if i feel uncomfortable.

Let me know if you have gathered any other information.

I am going to test waters with 1L investment in a Small Finance Bank and see. I would proceed with caution initially. I also have limited information as of now, but the interest rate is really enticing. We have to keep a eye on news related to those bank.

[binand]

Originally Posted by Ananthang

Are FDs in small finance banks (like Utkarsh, Ujjivan) safe. I read it is backed by RBIs insurance policy of 5L per PAN.

As far as I know, the only difference between an SFB and a (non-SFB?) regular bank is that the former has to prioritise small finance lending - ie, to individuals, coops, MSMEs etc. whereas the latter can also lend to large corporates.

A quick DDG search brings up this link: https://www.tatacapital.com/blog/gen...mmercial-bank/

[WDM007]

I have been investing in FDs for more than 2 decades now. Here is my learning and take away from my experience:

1. Usually, most of the bank FDs are insured by RBI till a limit of 5 Lakhs. Hence never put more than 5 Lakhs in any small fin bank.
2. Always make FD for ~1 year, so that you get benefit of best interest rates
3. If the bank is listed on BSE /NSE, keep a tab on their quarterly results, like declining Profit Margins, increasing Non-Performing Assets, lower returns / dividends etc. This will give you an idea, if you should renew your FDs again or not.
4. If the bank is not listed and small, do ask them about their Annual Report copy. I usually ask for it, and get an overall view of the earnings.
5. Put major amount of your money in bigger and national level banks [IndusInd Bank / IDFC First Banks also provide higher int rates] You can check and invest in these banks also.
   

Lastly, FDs may not be able to beat the inflation and hence do consider a part of your money investment in Mutual Funds.
If you are in high Tax bracket, than Mutual Fund investment may help to save some of the Tax component.

[Ananthang]

Have some extra cash which I want to put in Low risk. I see FD rates are very competitive for 1500 days etc while I also have a PPF which is due in 4 Yrs. Should I invest the surplus in FD or PPF. I am not clear if compounding at 7 or 7.25% will get me better benefits than a FD at small finance Banks.
Can someone guide me here

[vrprabhu]

There is a limit on the amount you can deposit in PPF - Rs. 1.5 lakh per year.

Obviously, compounding @ 7.25% gives a better return than 7%! The frequency of compounding (monthly, quarterly, half-yearly, annual) as well as the time period for which it is compounded (the longer the tenure, the greater the compounding effect) also matters.

Banks generally compound on quarterly basis (and hence may give a slightly higher return than PPF, if interest rate and period are same).

The additional advantage of PPF vis-a-vis Bank FD is that, in the former the interest earned is tax free...

[Ananthang]

Originally Posted by vrprabhu

There is a limit on the amount you can deposit in PPF - Rs. 1.5 lakh per annum.

Thanks vrprabhu. I made an excel comparison and feel if we move the tax exemption out of equation, we are better off with regular FD as I have moved to New Tax Regime. I guess PPF is compounded annually only, but I am not able to confirm this, but banks compounding at Quarterly, I am leaning towards not going for PPF as returns are lesser than Banks and not worry about 15 year lock in.

[binand]

Originally Posted by Ananthang

I guess PPF is compounded annually only, but I am not able to confirm this

My research is a bit old, but what I recall of PPF interest calculation is this.

After CoB of the 4th of each month, the interest calculator takes your balance.
Interest for the financial year for that balance is calculated on pro-rata basis (ie, balance x remaining months x interest rate / 12).
The sum total of these 12 interest calculations is credited to your account on 31 March.

As illustration - suppose you deposit the max 1.5L via these three different methods (assuming interest rate is 7.25%):

A. A one-time deposit between 1-4 April: The interest for this FY will be 1.5L x 12 x 7.25% / 12 = Rs. 11250
B. A one time deposit on 5 April (to 4 May): Interest is 1.5L x 11 x 7.25% / 12 = Rs. 10313
C. Monthly deposits of 12.5K on the 1st of each month: Works out to Rs. 5891.

So to maximise return from PPF you have to deposit the full 1.5L during the 4-day window of 1-4 April. I keep an alarm / reminder to do so. :-)