Tag: FD

High interest rates make Bajaj Finance FD the ideal investment avenue for one’s Diwali bonus, BFSI News, ET BFSI

Personal Finance

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Pune (Maharashtra) [India], November 3: The commencement of Diwali is accompanied by the joy of receiving one’s Diwali bonus. With the much-awaited Diwali bonuses being credited widely, it can be tempting to splurge and treat oneself to some extravagance. Still, it would be a more prudent choice to invest a portion of one’s hard-earned income.

For working professionals, saving and investing should be the top priorities for budgeting their earnings. This is one reason why one must actively seek out better ways of investing their money. Amidst the sea of uncertainties and volatile market movements, the fixed deposit has proved to be a safe harbour for investors. Bajaj Finance is one such financier that offers investors the dual benefit of high FD interest rates along with deposit safety.
Here’s why one should invest in this instrument to yield high risk-free returns this Diwali:
Benefit from high FD interest rates

Bajaj Finance offers one of the highest FD interest rates, up to 6.50%, along with an extra rate benefit of 0.10% p.a. for online investors. Senior citizens get an additional rate benefit of 0.25% p.a. irrespective of the mode of investment.

Consider an example where an individual invests Rs. 2,00,000 choosing a 5-year tenor in a Bajaj Finance online FD, the table shows the expected returns at maturity.

Loan against fixed deposit for cash crunches

Bajaj Finance Fixed Deposit offers a loan against the FD facility to address emergencies. This way, investors will not have to break their FD and thus, benefit from accumulated interest. The maximum loan amount one can avail of is 75% of the FD value.

Online FD calculator to estimate returns

To make financial planning simple, Bajaj Finserv gives free access to an online fixed deposit calculator. With it, investors can determine the returns they’ll earn at maturity. One needs to select the investment amount and tenor to get the results.

Easy online application process

Amidst all the celebrations, investors can kick-start their investment journey from the comfort of their homes. Booking an FD with Bajaj Finance is now easier than ever with an end-to-end paperless and digital process. One has to fill an online form and submit a few essential documents to start investing. Investing online can fetch investors aged below 60 years an additional rate benefit of 0.10% p.a.

Highest safety and credibility

Market-linked investments may offer high returns, but one must keep a close eye on them to shield them from fluctuations and capital loss. Fixed deposits, in this case, are incredibly safe, owing to their non-equity-linked nature as opposed to mutual funds and stocks. Moreover, Bajaj Finance FDs come with the highest ratings of MAAA and FAAA from ICRA and CRISIL, ensuring that their savings grow safely. This way, investors can be confident that their earnings are in safe hands.

Investors can consider investing their bonuses in a Bajaj Finance Fixed Deposit to grow their savings without worrying about market uncertainties.



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Should you invest in Hawkins Cooker FD opening for booking on September 15?

Personal Finance

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With interest rates bottoming out, fixed income investors have been scouting for options with higher returns. But higher returns invariably mean higher risk. Consider the case of the FD scheme of Hawkins Cookers. The company is offering 7.5 per cent per annum for deposits with a tenure of 12 months. For deposits of 24 and 36 months, the rates offered are 7.75 per cent and 8 per cent per annum, respectively. These rates are higher than many others in the market today.

But the flipside is that FDs of Hawkins are rated ‘MAA’/Stable rating by ICRA. While this rating implies high credit quality and low credit risk, it is a couple of notches below the highest rating of ‘MAAA’ — indicating that the Hawkins deposit has higher risk than the safest deposits in the market today.

Investors who can take such higher risk for higher returns can consider the FD scheme of Hawkins that opens on Wednesday, September 15, 2021. Interested investors should note that they should pre-register for the FDs on the company’s website (https://www.hawkinscookers.com/fd2021.aspx), beginning 9:30 am. Once you register, you will get a pre-acceptance number and the payment has to be made within 10 days, with a filled in FD application form. If the pre-accepted numbers cross the threshold amount (₹28.17 crore) which the company intends to raise through FDs, you will be put on a wait-list. Wait-listed applications will be considered if pre-approved applicants fail to pay within the stipulated time.

At the current juncture, locking into deposits with longer tenures could mean missing out on higher returns when the rate cycle begins to move up. A one- to two-year time-frame hence, seems better, as this could perhaps give the opportunity to reinvest at higher rates later on.

Why FD investors get the short end of the stick under waterfall mechanism

The company accepts a minimum of ₹25,000 as deposit and in multiples of ₹1,000 thereafter — up to a maximum of ₹20 lakh. Investors can choose from the cumulative and non-cumulative options. Under the former, interest will be compounded at monthly rests and paid on maturity, along with the principal. A deposit of ₹25,000 will fetch ₹26,941/ 29,177/31,756, at maturity, for tenures of 12/24/36 months, respectively. For non-cumulative deposits, interest will be paid out on half-yearly basis.

Given the relatively higher risk, it is recommended that investors restrict their investments to the minimum amount. Also, it will suit those with a bigger investible surplus on hand as they can park only a portion of their surplus here.

Better rates than others

The interest rates offered by Hawkins are relatively higher across tenures. For a 12-month deposit, while public sector banks offer 4.25-5.15 per cent, private banks offer up to 6 per cent, and small finance banks (SFBs) offer up to 6.5 per cent — Hawkins offers 7.5 per cent. For tenures of 24/36 months, banks currently offer up to 7 per cent, while Hawkins offers 7.75 and 8 per cent, respectively.

But the relatively lower rates offered by banks on their deposits are commensurate with their relatively higher safety. FDs with banks (including those with SFBs) are covered under the deposit insurance offered by DICGC, for up to ₹5 lakh per bank. This cover is not available for corporate FDs such as those of Hawkins.

The rates offered by Hawkins are 150 to 220 basis points higher than those offered by NBFCs, such as Bajaj Finance and Sundaram Finance. But these deposits have a higher credit rating (AAA), indicating better safety.

Even among its peers with about similar rating, the rates offered by Hawkins score better. For instance, Shriram Transport Finance’s deposits, rated MAA+ by ICRA (also rated FAAA by CRISIL), offer 6.5/6.75/7.5 per cent per annum and tenures of 12/24/36 months, respectively. JK Paper has a similar rating (‘FAA’/Stable by CRISIL), but the interest rates offered by it are 50-75 basis points lower than those offered by Hawkins, across tenures.

About the company

Hawkins is one of the leading manufacturers of pressure cookers in India with a wide distribution network (the brand has second highest market share of 34.9 per cent). The company has also diversified its product portfolio into other cookware products that constitute about 20 per cent of its turnover.

However, Hawkins is a small company, both in terms of turnover and market capitalisation (₹3,281 crore).

While the company’s revenue grew by 10.3 per cent compounded annual growth rate (CAGR) over FY16 to FY19, the growth was muted in FY20 — 3.2 per cent (y-o-y) to ₹674 crore, owing to the Covid-19 lockdown restrictions in March quarter. In FY21, however, with the company upping its online presence, sales saw a re-bound and grew by 14 per cent (y-o-y) to ₹768 crore.

Net profit grew by 14.5 per cent CAGR over FY16 to FY21 to ₹80.6 crore.

Hawkins plans to meet its working capital requirements from this FD scheme, apart from using the money as a buffer for any unforeseen exigencies. The company has unencumbered cash and liquid investments of ₹167 crore in FY21 compared to ₹48.5 crore as of March 31, 2020, owing to shorter debtor turnover days during the year (revised policy in FY21). Besides, as per ICRA’s rating rationale, the company also has largely unutilised working capital limits, which provide a liquidity cushion.

The company is net-debt free, and its debt to equity ratio is healthy at 0.13 times as of March 2021.

All you wanted to know about NRI bank fixed deposits

While the lockdowns initially impacted the sale of its products, the WFH scenario has helped boost their demand, thereafter. In the recent June quarter, the company’s top line soared by 50 per cent over the year ago period to ₹151.45 crore. Besides, while continuing fixed costs despite abysmal sale volumes and rising input prices dented its profits last year, the company raised prices by 5-10 per cent this year. Following the price rise and sales getting back to normal, its net profits inched up to ₹17.13 crore during June 2021 quarter, compared to ₹6.45 crore in the corresponding quarter last year.

Conservative investors who prefer full safety of capital over returns may avoid this offer, given its lower credit rating and the unsecured nature of the deposits.

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Google Pay users can take FD benefits of Equitas SFB without bank account, BFSI News, ET BFSI

Banking & Finance

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New Delhi, Sep 1 (PTI) Google Pay users can take the benefits of fixed deposit rates offered by Equitas Small Finance Bank by booking FD on the payments platform without opening a bank account. The bank said it has been offering this initiative by connecting APIs built by fintech infrastructure provider Setu for Equitas Bank.

In an industry-first, consumers can through the Google Pay app book high-interest rate FDs fully digitally, without needing to open a savings account with Equitas Bank on its spot integrated with the Google Pay platform, Equitas SFB said in a release.

The lender said that customers can earn returns of up to 6.35 per cent for an FD of one year, substantially higher than many other savings options.

As an RBI scheduled commercial bank, deposits in Equitas are covered by a deposit guarantee of up to Rs 5 lakh per depositor, it added.

To book an FD on Google Pay, the user will have to search for the Equitas Bank spot under the ‘Business and bills’ segment.

Further, they will have to select an amount and tenure for the fixed deposit, provide their personal and KYC (know your customer) details, and complete the payment using Google Pay UPI.

“On maturity, the proceeds will automatically go to the Google Pay user’s existing Google Pay linked bank account,” it said.

Users can track their deposits, add new ones and place an order for premature withdrawals.

In case, a user wants to prematurely withdraw the deposit, the proceeds will reach their bank account as quickly as the same day, Equitas Bank said.

To begin with, the Equitas Bank fixed deposit facility will be available for Google Pay users on the Android app.

As the bank is all set to celebrate its 5th anniversary on September 5, 2021, this collaboration is a dedication to the digital world, it said.

“Equitas has been one of the early adopters of digital banking and Neo banking in particular. This programme provides a true digital FD booking experience; we have made efforts to ensure that the experience is as simple and seamless as possible.

“We hope to increase the financial inclusion by encouraging a savings culture, at the same time making the FD booking process simple and easy,” Murali Vaidyanathan, Senior President and Country Head, Equitas SFB said.

Sahil Kini, CEO and Co-founder of Setu, said bank FDs are India’s favourite savings instrument and booking an FD should be as simple as making a UPI payment.

“But, most banks require customers to open a savings account and then book an FD. By partnering with Setu, Equitas SFB has been able to make standalone FDs available on Google Pay,” Kini said. PTI KPM BAL BAL



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Banks’ use of FD-OD fix irks RBI, BFSI News, ET BFSI

Banking & Finance

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Banks are cutting new deals with corporates to dodge a recent Reserve Bank of India (RBI) rule. The tactic is not going down well with the regulator, which has got wind of it.

Loosely called the ‘FD-OD’ deal, it’s a simple arrangement where a company parks some funds as fixed deposits (FD) and the bank gives an overdraft (OD) to the client. The innocuous transaction is being used as a ploy to overcome the rule prohibiting a bank from having a current account of a company to which it has given little or no loans. According to the regulation, abank with less than 10% of total approved facilities — comprising loans, non-fund businesses such as guarantees and overdrafts —to a company cannot have its current accounts, which are sought after by lenders as zero-interest deposits lower cost of funds.

RBI had directed all banks to give up such current accounts by July 30. The regulator, according to media reports, had even frozen accounts after some banks failed to meet the deadline.

In the past few weeks, though, here’s what many companies and banks have done. Say, total facilities by the banking industry to a company is Rs 1,000 crore, while the bank that holds the company’s current accounts has only Rs 10 crore loan exposure to the entity. According to the RBI directive, it has to then surrender the current account. Now, to bypass this rule, the FD-OD arrangement is entered into. To maintain the current account with the same bank, the company makes an FD of Rs 105 crore with the bank, which, in turn, extends a ‘secured OD’ of Rs 100 crore. Since the bank’s exposure to the company (by virtue of the OD) is now 10% of the total facilities approved by the banking industry, the current accounts are retained by it without taking any extra risk.

“RBI has come to know of these back-to-back deals,” said a senior banker. “Senior supervisory managers (of RBI) assigned to various banks are enquiring with banks to check whether the regulation is being followed in letter and spirit. Deputy governor MK Jain is serious about the directive, even though it boils down to micromanagement by the central bank. Even if an RBI official thinks differently, he has to follow the instructions.” (Jain’s responsibilities include supervision and HR, among other things).

“Technically, banks are not breaking any rules. So, on what grounds would RBI stop ODs?” said the banker.

The regulation stems from RBI’s belief that errant corporate borrowers will find it tougher to divert funds if their current and collection accounts lie with lending banks. However, industry sources say that current accounts are often kept with non-lending banks due to genuine business reasons. Not all lending banks, say industry sources, have good cash-management practices that corporates require for vendor payments, escrow accounts, collection from sales etc.

TEMPORARY SOLUTION

Bankers, however, know that the FD-OD deal can only be a temporary solution, as companies may pull out FDs if there is a sudden fund crunch.



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Stretch dates for better rates

Personal Finance

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Falling interest rates on bank FDs have been pinching investors for quite some time now. Investors with some appetite for risk flocked towards small finance banks in search of better rates. The ones comfortable with higher risk choose deposits offered by NBFCs and other corporates. For those looking for better rates, there is another way out – special deposits.

Some banks offer a tad higher interest rate on FDs of certain special tenures. For instance, Equitas Small Finance Bank offers an FD for 888 days (a bit over 2 years and five months). The interest rate on this deposit is 6.5 per cent per annum. It offers 6.35 per cent per annum both on its deposits of greater than 2 years to 887 days and on deposits of 889 days and above. Since seniors get a flat 0.5 per cent additional rate on all deposits of Equitas SFB, they can benefit more from this special tenure FD.

DCB Bank offers a special rate for deposits with a tenure of 700 days (23 months). This deposit can fetch you 6.4 per cent per annum. Compared to this, the bank’s other deposits with tenures of 15 months and beyond, up to less than 3 years (except 700 days) offer only 6 per cent per annum. Seniors get 50 basis points (bps) higher interest across all tenures. Note that, you must deposit a minimum of ₹10,000, across deposits of all tenures.

Similarly, Axis bank offers a rate of 5.15 per cent for FDs with tenure of 1 year and 5 days to 1 year and 10 days. On all other deposits with tenure greater than 1 year (up to 1.5 years) the rate of interest is 5.1 per cent.

Just a day longer

A few other banks have higher rates for select range of tenures. In these cases, by expanding your investment tenure by just a day, you can avail higher interest rates on your bank FDs.

For instance, AU Small Finance Bank offers 6.1 per cent per annum on FDs with tenure ranging from 12 months and 1 day to 15 months. This is higher than the 5 per cent on deposits of up to 1 year and the 6 per cent offered on tenures beyond 15 months and up to 2 years.

If you have a slightly longer horizon, you can consider the bank’s FD for 2 years and 1 day which can fetch you 25 basis points higher interest rate per annum than a 2-year deposit.

Even with HDFC bank, by stretching the deposit tenure for a day beyond two years, you can earn 25 basis points higher rate, that is 5.15 per cent per annum.

ICICI Bank offers 4.9 per cent on deposits with a tenure of up to 1.5 years, beyond which the rates are 10 basis points higher i.e. 5 per cent per annum for tenures of up to 2 years. A deposit for even a day longer than 2 years can fetch you 5.15 per cent per annum.

Word of caution

However, do keep a check on the bank’s financials and do not base your investment decision solely on the rate of return offered. For instance, while DCB Bank offers higher rates, in the recent March quarter it reported a spike in its GNPA (gross non-performing assets) to 4.09 per cent from 2.46 per cent a year ago. This is expected to deteriorate further in the coming quarters with the second wave of the pandemic hampering collections. While the bank is adequately capitalised (CRAR of 19.67 per cent), its provisions cover just about 62 per cent of the bad loans as of March 2021.

Also, since the interest rates are bottoming out it would be wise to limit the tenure of your deposits to a maximum of two to three years today. Then, you will be well placed to benefit from higher returns on your FDs when rates go up. Also, be mindful of any restrictions on pre-mature withdrawals on such special FDs.

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Where to park your equity profits

Personal Finance

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Of late, a chorus of market voices have piped up to say that global stock prices are in bubble territory. The RBI recently described the Indian stock market as a bubble. Bubble or no bubble, there can be no disputing that after the breathless rally of the last five years, Indian stock valuations are very expensive. If you’re sitting on hefty equity gains or high equity allocations, this makes it prudent to book some profits on your equity portfolio. But a practical problem that stops many folks from booking equity profits is not knowing where to invest those gains.

We suggest dividing your gains into three buckets and recommend suitable investment products for each bucket.

Capital protection bucket

If the stock market rally has made a significant difference to your overall wealth, you may want to convert some of those paper gains into real money, to meet your short-term or long-term financial goals. In this case, you should primarily look for safety of your capital in re-investing your equity gains.

Market-based bond investments today carry both credit and duration risk (the risk of default because of Covid and the risk of capital loss from rising rates). Indian government-backed sovereign instruments offer protection from both.

If you are looking to set aside equity gains towards long-term goals such as retirement that are at least seven years away, GOI’s Floating Rate Savings Bonds sold by RBI on tap via leading banks, offer the rare combination of good returns with capital safety. The bonds’ floating interest is pegged at a 35-basis point premium to the prevailing rate on the National Savings Certificates. For the April-June quarter, this interest was 7.15 per cent.

The floating rate makes this a good bet in a rising inflation/rate scenario. The only disadvantage of the bonds is that it offers no compounding and only pays out interest. The bonds also carry a 7- year lock-in and are not tradeable. A second sovereign-backed option is the five-year National Savings Certificate (NSC) from India Post. While rates are reset quarterly, you get to lock into a specific rate for five years. NSC currently offers lower rates of 6.8 per cent than the GOI savings bonds. But it allows accumulation of interest and has a shorter lock-in of 5 years.

For goals that are 5-7 years away, passive debt ETFs that invest in government securities are good options. IDFC Gilt 2027 Index Fund, IDFC Index 2028 Index Fund and Nippon ETF 5-year Gilt ETF are such funds that can get you to a fairly predictable return by those target dates.

If you need the money within the next 3-5 years, you can consider gilt mutual funds with a short maturity (there aren’t too many of them but Axis Gilt is one) or PSU & Banking funds with short maturity (Axis, UTI and IDFC have less than 2-year average maturity). These may not be as safe as sovereign instruments, but do offer liquidity with a fair degree of capital protection.

Diversification bucket

Some folks may book profits in their equity holdings not because they need the money to meet any goals, but simply to de-risk their portfolios. If you work to a pre-decided asset allocation pattern (as all investors should) and have seen your equity allocations overshoot your comfort level, you should invest your equity gains in long-term options that help you diversify from equity risks.

Two options to consider are Sovereign Gold Bonds and REITs. Gold is one asset class that has lagged during the concerted rally in stocks, bonds and commodities recently. It also tends to deliver gains when stock prices tank. Sovereign gold bonds, bought either from primary issuances by RBI or in the secondary market, therefore present a good option to park some of your equity gains. Gold ETFs can be an alternative.

Real estate too has delivered rather muted performance in India in the last few years and therefore makes for a good diversifier. REITs or Real Estate Investment Trusts are a good proxy for commercial real estate investments, through a regulated, divisible and liquid vehicle. Listed REITs such as Embassy Office Parks and Mindspace own a portfolio of office complexes from which they earn rents from high-quality clients.

Liquidity bucket

You may have every intention of getting back into equity markets when a big correction materialises and valuations cool down. Such corrections and also the reversals from them, can be swift and sharp. Re-deploying your money into equities after such corrections would be impossible if you lock all your equity gains into instruments such as GoI bonds, NSC or even SGBs.

To keep powder dry for such a re-entry, apart from Gilt and PSU/Banking debt funds mentioned above, Liquid Bees or other Liquid ETFs (ETF which invest only in safe money market instruments) are a good option. These funds carry a constant NAV while declaring their returns as daily dividends, which are credited as fresh units in your demat account.

Fixed deposits with leading banks, which can be instantly liquidated online, are just as good for this purpose. These aren’t high-return or tax-efficient options but keep your money safe for quick re-deployment.

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Why FD investors get the short end of the stick under waterfall mechanism

Personal Finance

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Shivram, an FD investor in Dewan Housing Finance Limited (DHFL) talks to his chartered accountant cousin Janaki to understand the waterfall mechanism.

Shivram: Sorry to bore you with this when you’ve come for a fun visit Janu. I had DHFL fixed deposits when it went bust in 2019. I was happy to read somewhere that the Piramal group is going to take it over under IBC. I saw a resolution plan where FD holders will get back their money. But now I see the whole thing is going to drag on more, because creditors aren’t happy.

Janaki: Many of my clients hold not just FDs but also secured NCDs in DHFL.

Shivram: See, what irritates me is that these big lenders like banks and insurance companies are blocking FD holders from getting more money. They just voted out a proposal to give FD holders an additional ₹966 crore, over the ₹1241 crore proposed in the original plan. That would have meant my getting back over 40 per cent of the money, instead of 23 per cent. I’m already taking a 60 per cent ‘haircut’. Why can’t small investors get entire money back? Only big guys can afford costly haircuts!

Janaki: I see that you aren’t aware of the waterfall mechanism. When a company goes broke and has less assets than liabilities, this mechanism decides which lenders get priority over others.

Shivram: The only waterfall I know is in Kutralam! So Janu, tell me, why is this waterfall giving me a haircut?

Janaki: Haha, you see, haircuts and waterfalls come into play in the DHFL case because the Piramal group which is acquiring it is willing to pay only ₹37,250 crore for it. But DHFL has outstanding dues totalling to over ₹90,000 crore. So, lenders have to take haircuts.

Shivram: But how do they decide that pensioners like me take an 80 per cent haircut?

Janaki: That’s what the waterfall mechanism does. Imagine a mini-waterfall, not Kutralam, where the water pours down from a height and there are buckets placed below it at different levels. Water flows into the second bucket only when the first one overflows. The third bucket gets filled after the second. If there isn’t enough, the bottom buckets get only a trickle. Similarly, waterfall mechanism in debt resolution decides which creditors of a company are the top buckets when there isn’t enough money.

Shivram: Why does this waterfall mean FD holders get only 23 per cent of their money?

Janaki: Because FDs in a company/NBFC are unsecured borrowings. The IBC’s waterfall mechanism gives clear priority. With any money that comes in, the resolution costs are met first and any accumulated dues to workmen are paid off. Secured creditors get top priority. Salary dues to employees come after them and unsecured financial creditors like depositors only after that.

Shivram: You’re telling me people who invested in DHFL NCDs will not take haircuts?

Janaki: They too will but probably less than FD holders.

Shivram: So is nobody going to take a bigger haircut than me?

Janaki: Equity investors are, Shiv. They come last in the waterfall mechanism.

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Covid-19: Depositors’ body seeks suspension of penalty on premature FD withdrawal

Banking & Finance

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The All India Bank Depositors’ Association (AIBDA) wants the Reserve Bank of India (RBI) to direct banks to suspend penalty charges on premature withdrawal of Fixed Deposits (FDs) in view of the Covid-19 pandemic.

In its “Addendum to Memorandum to the Reserve Bank of India,” the AIBDA observed that many depositors are under compulsion to prematurely withdrawal their savings to defray the excessive medical bills for treatment of Covid virus and many have lost their jobs.

Hence, the association requested the RBI for a moratorium on penalty charges for premature deposit withdrawal up to ₹5 lakh.

AIBDA underscored that this request is in light of the accommodation given (with respect to moratorium on loan repayments and resolution framework) to small borrowers, MSME loans up to a given limit.

Depositors need relief

“When borrowers are accommodated then why is there no relief for bank depositors – it is unfair and iniquitous.

“This has become of paramount importance in the current pandemic scenario with unemployment, economic uncertainties, health concerns and unexpected expenses,” said DG Kale, President, and Amitha Sehgal, Honorary Secretary, AIBDA.

The association’s office bearers emphasised that many sections of the society depend on FD interest income as a primary source of income.

“It is only in case of extreme necessity/ emergency that a depositor may withdraw the FD prematurely. It is unfortunate that if they need to break the FD receipt, they also have to forego a part of their income as ‘penalty’,” said Kale and Sehgal.

From the long-term perspective, AIBDA urged the RBI to nudge banks to have a more reasonable penalty structure, that is responsive to the current predicament faced by depositors.

The association said while FD rates are currently hovering at around 4 to 5 per cent per annum, the premature withdrawal penalty can be nearly 0.50 to 1 per cent per annum.

Earlier the FD rates used to hover around 7-8.50 per cent. According to AIBDA’s calculation, the penalty of 1 per cent was reducing the return by approximately by 12 per cent (1 per cent divided by 8 per cent).

Currently, FD rates are hovering around 4 to 5 per cent. The penalty of 1 per cent will bring the return down by 20 per cent (1 per cent divided by 5 per cent).

Unfair to depositors

“This is unfair to depositors. In the best interests of retail/ small depositors and in the light of the current falling interest rate scenario, the existing policy related to penalty on premature withdrawal needs a review,” said the AIBDA office bearers.

AIBDA reiterated its concern that retail depositors are likely to be lured by riskier financial assets to improve on the rate of return on their savings.

Against the backdrop of the impending turbulence and uncertainty in the financial market and a likelihood of stress in the banking/ NBFC/ corporate sector, it is important to take care of this risk, it added.

The association emphasised on the need for some calibration in penalty, linking it to absolute percentage return so that retail depositors are able to meet their objective of generating suitable return from this banking product.

It suggested that the penalty may be linked with the value of the FD, with small value FDs having nil or lower penalty structure.

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Tax query: Does inheritance attract income tax?

Personal Finance

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My wife has received some money being the second holder in an FD with her mother (now deceased). The FD maturity amount is to be shared with all her brothers and sisters, as per the legal heir certificate (there is no will). As of now, the bank has deleted the name of the first holder on submitting the death certificate. How does she account for these amounts? Already a portion was shared but the entire TDS isn’t being shown in her name.

HH BernardAs per the provisions of Section 56(2)(x) of the Income-tax Act, 1961 (‘the Act’), a sum of money received by way of inheritance should not be considered as taxable in the hands of the recipient. Thus, money received by your wife as legal heir of her mother shall not be taxable in her hands. Her share of such receipt will be required to be considered by her as an exempt income and accordingly reported while filing her tax return for the subject year. Regarding claim of TDS, your wife will be required to claim credit of her share of proportionate TDS in her hands along with proportionate share of interest income, and the balance TDS (for siblings’ share) will be required to be passed on to respective siblings. Such bifurcation must be appropriately reported in your wife’s income-tax return form (under TDS schedule) for the financial year in which tax has been deducted.

My father-in-law (78 years) is a retired government official earning a monthly pension from Central Government. Is he eligible to invest under PMVVYor SCSS? What are the tax benefits/liabilities, if any, subject to his eligibility?

Ashim Sanyal

The primary eligibility criteria for both the schemes mentioned by you i.e. Pradhan Mantri Vaya Vandana Yojana (PMVVY) and Senior Citizen Savings Scheme (SCSS), is that the individual opening the account should be 60 years of age or more. The schemes do not have any restriction on the maximum entry age or for retired central government employees. NRIs/ HUFs are not eligible for SCSS. As your father-in-law is 78 years of age and assuming he is a resident in India (pre-requisite for SCSS), he shall be eligible to invest in both the scheme.

Both schemes do not provide any tax benefits at the time of making investments. The pension received from the scheme shall also be taxable in the recipient’s hand at applicable slab rates, as ‘Income from Other Sources’.

I have invested around ₹4 lakh in some mutual fund schemes, all being regular plans with dividend options. They have deducted tax on the dividend amounts paid during financial year 2020-2021. Will the mutual funds issue Form 16A and will the details of taxes deducted and remitted to the Government be reflected in Form 26AS of the tax department? Also, can I claim refund of the tax so deducted on filing my return of income? Please clarify.

J R Ravindranath

As per section 194K of the Income-tax Act, 1961, any person, making payment of dividend from mutual funds, shall at the time of credit of such income or at the time of making payment (exceeding ₹5,000), whichever is earlier, shall deduct tax at source (TDS) at 10 per cent. The deductor is required to file the details of such TDS in quarterly withholding tax statement (Form 26Q) and TDS certificate (in Form 16A) is required to be issued by the deductor within prescribed timelines. Details of such income and corresponding TDS shall reflect in your Form 26AS for FY 2020-21. You can file an income tax return and show your dividend income as also any other income which needs to be declared. Basis your taxable income and resultant tax payable, you can claim credit for TDS on dividend and claim a refund, if any.

The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in

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