Impact of safety ratings on your Fixed Deposits

Last Updated: Mon, Apr 22, 2019 14:04 hrs
Rupee (PTI image)

According to a survey conducted by SEBI, more than 95 per cent of Indian households held savings in the form of bank fixed deposits in 2015. The credit for this goes to the safety and guaranteed returns that Fixed deposits promise, which help them stand out for both conservative investors and those looking to balance the risk on their portfolio. Also, bank fixed deposits are insured by the DICGC by the virtue of which investments are insured up to a maximum of Rs 1 lakh. This insurance amount covers both principal and interest.

In the case of company fixed deposits, the scenario is slightly different in terms of interest rates and safety. Company FDs offer higher interest rates when compared to those offered by banks and post offices. As a thumb rule, with higher returns come higher risks and, in a bid, to completely close the door on risk, investors often lose out on attractive returns that can add to their portfolio.

What are safety ratings?

To encourage investors and instil a sense of security in them, credit rating agencies like CRISIL and ICRA rate company fixed deposits based on their safety. Such safety ratings are based on the issuer's credit rating and profile, financial obligations, and credibility in the market. Here are some of the most important factors that credit rating agencies consider:

Issuer's liquidity

Issuer's debt repayment profile

Issuer's track record and customer service

Market for the FD and existing competition

Issuer's risk management structure

Issuer's management team

Scope for expansion in issuer's business

FD maturity profile/s

FD renewal rate

Granularity of the FD

Credit rating agencies take all the aforementioned factors into consideration and rate the FDs to indicate the likelihood of safety and timely repayment of an investor's principal and payment of returns. These ratings thus help you to differentiate between low-risk and high-risk FDs.

Here is the nomenclature of CRISIL and ICRA FD safety ratings for the fixed deposits with a tenor of more than a year.

CRISIL:

NM: Not meaningful

FD: Default

FC: High risk

FB: Inadequate safety

FA: Adequate safety

FAA: High safety

FAAA: Highest safety

ICRA:

MAAA: Highest credit quality

MAA: High credit quality

MA: Adequate credit quality

MB: Inadequate credit quality

MC: Risk-prone credit quality

MD: Lowest credit quality

In addition to this, ICRA attaches + or - to these symbols to indicate relative ratings. For instance, MAA+ is safer than MAA and MAA-.

Based on these CRISIL and ICRA FD ratings, you can now make sound investment decisions after evaluation of the safety ratings. By investing in an FD after mindful evaluation of the safety ratings, you can make the most of your savings and allow them to grow.

Consider investing fixed deposits that rank high in both CRISIL and ICRA ratings as it indicates consistency, stability, and credibility. Bajaj Finance fixed deposit has the highest safety ratings of FAAA by CRISIL and MAAA by ICRA, which means your investment amount is safe. It is best to invest with financiers with high credibility ratings, so that you can protect and grow your hard-earned money.

Bajaj Finance Fixed Deposit also offers a lucrative interest rate of up to 9.10 per cent, and you can invest your savings easily. You can also choose your tenors, and avail the option of periodic pay-outs, to fund regular expenses. You can also choose the frequency of your interest pay-outs, as per your convenience.