Bank deposit rates are at rock bottom, making it hard for fixed-income investors – especially those looking for reinvestment on their recently matured deposits – to find attractive investment options. Investors with a stomach for risk can consider Dewan Housing Finance (DHFL)'s fixed deposits.
These deposits are offered at an attractive rate (pre-tax) for various maturities. However, we suggest that investors lock into deposits for shorter tenors such as one year and 500 days at this juncture. While interest rates are likely to move up over a one-year time frame, the rates offered are high enough to factor in some increase in market rates.
The rates offered by DHFL begin from 9 per cent and some of these options are compounded half yearly. For the same maturities, bank deposits currently offer rates ranging from 6 per cent to 7.25 per cent.
While the higher rates may suggest higher risk, there are several confidence-inducing factors. The company has an investment grade credit-rating, one notch below the highest level. High levels of capital adequacy (16.2 per cent as of March 31, 2009) and the secured nature of its business (housing finance) are also positives. DHFL recently raised Rs 300 crore through share sale (QIP and preferential allotment), which would have augmented capital adequacy and strengthened the balance sheet.
Special scheme
Various fixed deposit options and pre-tax interest rate are offered by DHFL. Senior citizens are given an additional rate of 25 basis points.
Short-term options are currently preferred given that the rates may trend up over the next few quarters and the less risky instruments may turn attractive.
Among the various options, the 500-day, 9.1 per cent scheme (Swayamsidha deposits) stands out thanks to its combination of good rates and shorter maturity.
The annual pre-tax yield for this works out to 9.3 per cent.
However, the option is only available for women or for joint deposits with women as the first holder.
Outside of this special scheme, investors can choose the one-year, 9 per cent or the two-year, 9.1 per cent cumulative options. These products are compounded half-yearly due to which the yields work out to be higher. These instruments also reduce re-investment risk. There is also a certificate option that pays a pre-determined amount (Rs 10,000) for initial payment of a certain sum. The yield on these certificates is the same as that of cumulative deposit options. We do not suggest the longer tenor options.
However, investors looking at steady income stream could opt for the non-cumulative options. These schemes have lower rate of interest over the cumulative option, depending on the periodicity of the payment.
These investments are also subject to re-investment risk.
DHFL is a housing finance company, with a loan book size of Rs 5,829 crore as of March 31, 2009. The company has an average loan size of Rs 6.9 lakh per borrower and has predominant presence in tier-II and tier-III cities. The net interest margin stood at 2.9 per cent for the year ended March 2009.
Business
During 2005-09, the company's asset book grew at an annualised rate of 36 per cent, yet the company managed to improve its net NPA ratio at 1.03 per cent from 1.25 per cent during the same period. For the half year ended September 2009, DHFL has posted 78 per cent growth in disbursements, which is indicative of the improving business outlook. The net profit for the first half of 2009-10 and the net profit for the year ended March 31, 2009, stood at Rs 68 crore and Rs 91 crore respectively.
The proportion of deposits is less than one per cent in the total borrowing. Majority of loans and borrowings are on floating rates which help it pass through the interest rate fluctuations. However, the maturities of the loans are of a longer tenor compared to the borrowings, which may lead to asset-liability mismatch.
1 comment:
i invested in DHFL fixed deposit for 84 months in April 2010 selecting quarterly option of interest payment (selected the ECS option)
Please note my experience
a) I got the FDR on time
b) I was expecting the interested to be credited by ECS by 1st july 2010. The interest did not come on time
c) When i call the Corporate Office and ask for FD Department, they just hang up the phone
i tried for 5 times, same results
d) Calling up the Registered office and when i complaint about the receptionist of the Corporate office, they said that they are like that only and i was given the number of the fixed deposit department
e) upon contacting the fixed deposit department, i found that they misplaced my blank cancelled cheque and wanted me to send them again, they did not have answer on i) how was cheque misplaced?
ii) who will compensate for the delay?
iii) why was no communication send to my postal address or phone call not made?
f) After sincere assurances from the FD department that they will do the needful on a priority basis after they receive the blank cancelled copy of the cheque, they did not do anything
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