IFSCCodeof.in

Invest in corporate FDs rather than bank FDs.

Corporate Fixed Deposits, like bank FDs, offer the security of guaranteed returns and the flexibility to choose the term. The Corporate Fixed deposits are in general offers 1% to 3% higher interest rates compared to what ban FDs offers for a similar period.

Bajaj FinServ is a good example of corporate FDs that offers a better return, higher than the bank FDs. These FDs offer assured returns, easy online application and accessibility, and Higher returns. These FDs schemes come with an option to receive a return at monthly or quarterly periods, depending on the options.

Compare the interest rates on FDs offered by different companies

Before going with a particular FD, it is better to compare the FDs interest offers that other companies are offering. Each lender offers a different rate of interest on FDs to their customer. Your goal should be to select the one that will provide you with the best return on your investment. Comparing the FDs interest rate will help you to choose the right FD and will improve and maximise your return.

For higher returns, choose a cumulative FD

After you’ve settled on corporate or bank FD, the next step is to maximise your fixed deposit returns. A cumulative and non-cumulative fixed deposit are both available to you. Choose a cumulative FD for a better and higher return on your investment. On maturity, a cumulative fixed deposit will pay you both the interest and the principle. The interest on a cumulative fixed deposit is added to the principal that could be monthly or quarterly. As a result, you are earning interest on interest. Because of the compounding effect, the effective rate of interest rises.

Go for the FD investments that offer Tax benefit

Some investments offer a tax benefit to the investors, choose the investments that offer you higher return savings. There are two types of tax benefits for you. The first one is under section 80c of the Income Tax Act, 1961. Under this section, the amount invested is deducted from the total income that is up to Rs 1.5 lakhs. These investments are Public Provident Fund (PPF) FDs. Etc. Fixed Deposit is one of them that comes under tax benefit.

The second one offers tax benefit on interest or return earned from the investments in the form of direct benefit to the investor. This allows the investor to avoid tax directly on the return.

Invest in a variety of FDs to increase your liquidity

Spending your money on a variety of fixed deposits can help you get consistent returns and liquidity at the same time. Build a ladder of FDs with different tenors to get the most out of your investment. For example, instead of investing all your money in one FD, split the amount into 2 or 3 and invest each one in a different FD. This will allow you to have the upper hand in liquidating the investment in case of emergency, and doing this also offer you a great return.

By following these steps you can improve your returns on fixed deposits. This will also allow you to have financial freedom.

Should you buy the stock of Coal India?

Last year at the same time, Coal India had declared an interim dividend of Rs 7.5 per share and this year it has given a better dividend. The company is regular on the dividend paying list, is a cash rich and also a debt free company. For the quarter ending Sept 30, the results of the company were not too impressive, but most brokerages are upbeat on the stock.

Recently, brokerage Motilal Oswal hiked the price target on the stock to Rs 200. According to the report, the Coal India stock trades at 3.4x/3x FY22e/FY23e EV/Ebitda, with an attractive dividend yield of 11%.

The brokerage has valued the stock at 4 times FY23e EV/Ebitda with a target price of Rs 200. “We maintain our Buy rating, with a revised target price of Rs 200 per share (from Rs 185 earlier). A surge in coal demand from the Power sector, which could squeeze supplies to non-regulated sectors through e-auctions, remains a key risk as it could hurt profitability,” it had said.

Even ICICI Securities had recently suggested a “buy” on the stock with a price target of Rs 234, implying a hefty upside from the current price of Rs 155.

Dividend yield should keep a floor price on the stock

The shares of Coal India have dropped from levels of Rs 200, following a shortage of Coal to the current price of Rs 155. If you buy the stock now, you are also entitled to a dividend of Rs 9 per share, which will bring down the cost of acquisition even further.

We suggest investors to but the stock as demand for coal is surging and prices are likely to remain elevated going forward. The dividend yield is consistently likely to remain over and above that 10% mark and anywhere between 11 and 15%. This makes the stock very attractive as the dividend yields are much better than the interest rates offered by bank deposits.

With the demand for power likely to surge, there is likely to be a corresponding surge in the demand for coal, which should augur well for the company.

At a time when there are threats of a new omicron virus, it would be a good idea to stick to strong dividend paying stocks, as the dividend yield on these companies would put a cap on the stock fall. We have been advising caution to investors not to invest large amounts and hence stick to debt free companies, with a strong track record of paying dividends.

Disclaimer:

Investing in equities poses a risk of financial losses and investors should exercise due caution before a large-scale exposure. Greynium Information Technologies and the author are not liable for any losses caused as a result of decisions based on the article.