Fixed deposits (FDs) have long been a reliable option for securing savings. If you’re considering stable investments, it’s worth exploring fixed deposits offered by Non-Banking Financial Companies (NBFCs). 

Before making any decisions, understanding the key reasons why NBFC fixed deposits are increasingly being considered by investors can help you make an informed choice.

What are NBFC Fixed Deposits?

NBFC stands for Non-Banking Financial Company. These companies offer financial services but aren’t banks. Fixed deposits (FDs) with NBFCs work similarly to bank FDs. You invest a lump sum for a fixed period and earn interest on it.

Why Consider NBFC Fixed Deposits?

Higher Interest Rates

NBFCs often offer higher interest rates than traditional banks. This means your money grows faster. For example, if a bank offers 5% interest on an FD, an NBFC might offer 6-7% for the same period.

Flexible Investment Terms

You can choose how long you want to invest. Options usually range from 12 to 60 months. This flexibility helps you plan your investments around your financial goals.

Compound Interest Benefits

Many NBFC FDs offer compound interest. This means the interest you earn also earns interest. Over time, this can significantly boost your returns.

For instance, a Rs. 1 lakh investment at 7% simple interest for 5 years would give you Rs. 1,35,000. With compound interest, you might get Rs. 1,40,255.

Loan Options

Need money urgently? Some NBFCs allow you to take a loan against your FD. This means you can access funds without breaking your investment.

Safety Ratings

Credit rating agencies like CRISIL and ICRA rate NBFC FDs. A high rating suggests your investment is safer. Always check these ratings before investing.

Potential Tax Benefits

Depending on your tax bracket, you might be able to claim deductions on the interest earned. This could lower your tax bill. However, always consult a tax expert for personalised advice.

Easy Nomination

You can nominate someone to receive your investment if something happens to you. This makes it easier for your family to access the funds if needed.

Early Withdrawal Option

While it’s best to hold your FD till maturity, most NBFCs allow early withdrawal. There might be a small penalty, but it’s good to have this option for emergencies.

Portfolio Diversification

Investing in NBFC FDs can help spread your risk. It’s a way to balance your investment portfolio between high-risk and low-risk options.

Simple Investment Process

Opening an NBFC FD is usually straightforward. You can often do it online or visit a branch. The process is typically quick and hassle-free.

Things to Consider

While NBFC FDs offer many benefits, it’s important to be aware of a few points:

• Risk Factor

NBFCs aren’t covered by deposit insurance like banks. Always check the company’s reputation and financial health before investing.

• Interest Rate Changes

Rates can change over time. Lock in good rates when you find them.

• Tax Implications

Interest earned is taxable. Factor this into your calculations when comparing returns.

• Reinvestment Risk

When your FD matures, new rates might be lower. Plan for this possibility.

• Inflation Impact

Ensure the interest rate beats inflation to preserve your money’s value.

How to Choose the Right NBFC FD

• Compare Rates

Look at offers from different NBFCs. Even a small difference in rate can impact your returns over time.

• Check Ratings

Higher-rated NBFCs are generally safer. Balance between returns and safety.

• Understand Terms

Read the fine print about penalties, withdrawal terms, and interest calculation methods.

• Consider Your Goals

Choose a tenure that aligns with when you’ll need the money.

• Diversify

Don’t put all your savings in one NBFC. Spread your investments for added safety.

Making the Most of Your NBFC FD

• Ladder Your Investments

Invest in FDs with different maturity dates. This gives you regular access to funds and helps manage interest rate changes.

• Reinvest Interest

If you don’t need the interest immediately, reinvest it to benefit from compounding.

• Stay Informed

Keep track of interest rate trends and your FD’s performance.

• Plan for Taxes

Set aside money for taxes on your interest earnings.

• Regular Reviews

Periodically review your investment to ensure it still meets your financial goals.

NBFC fixed deposits can be a smart addition to your investment portfolio. They offer potentially higher returns than traditional bank FDs with similar stability. However, like any investment, they come with their own set of considerations.

Before investing, assess your financial goals, risk tolerance, and current market conditions. It’s often wise to consult with a financial advisor who can provide personalised guidance based on your unique situation.

Remember, the key to successful investing is to stay informed, diversify your portfolio, and choose options that align with your financial objectives. NBFC fixed deposits could be one such option to help you grow your wealth steadily and securely.

You can also visit Bajaj Markets to manage your finances. Taking these steps will help you avoid pitfalls and achieve long-term financial success.