@livepositionaltrader You probably invested significantly more than 5L,
so the DICGC insurance (currently upto 5L) on bank-FDs wasn’t a factor in your analysis?
(or is there something identical or better available on the Sriram finance’s offering?)
Personally, i think that
none of us is in a position to accurately determine and reliably differentiate between such probabilities.
(various reasons like - lack of timely access to all relevant information, inability to understand/review detailed financial statements/regulations, lack of time to perform a thorough analysis, …)
So, in the absence of doing an reliable/accurate risk-assessment, we rely on the hive-mind.
Essentially, we perceive this as
the inability of Sriram finance to raise funding at
the current ongoing risk-free (sovereign guarantee risk) rate of return around 6-7%.
So, the additional couple of percentage points of returns
are to compensate us for the additional risk we are undertaking (whatever they may be).
In other words, what the math is telling us is
if we were to replay this EXACT scenario (investing in this offering from Sriram finance) a 100 times,
- we will lose our entire principal a small fraction of those 100 attempts
- we will lose various fractions of our principal/interest a larger fraction of those 100 attempts
…the fractions of such partial/complete failures being such that,
the effective average returns over those 100 attempts will be around 6-7%.
Of course, we humans are not perfectly rational beings.
Banks as a concept have been present (as institutions of relatively high trustworthiness) in our society /collective psyche for far longer than NBFCs. For better or worse, our society consists of individuals for whom “peace of mind” is an offering (among other nuances) that banks provide, and hence such folks are happy to pay something for it - a fraction of a percentage point of interest returns.
Described in terms of the “priceless” ad campaign, the (irrational?) sales-pitch for a bank-FD becomes -
- Account opening charges - 200 INR.
- Monthly statement email/sms charges - 15 rupees (per month).
- ATM debit card fees - 500 INR/annum.
- Freedom to do [insert here whatever you dream of doing in your life] for the next decade
knowing that all FD payments will be deposited in your bank account without fail on time - Priceless.There are somethings that money can’t buy.
For everything else, there is… a Bank FD?
I see the recent trend by various NBFCs offering individuals
bank-FDs that do NOT require the individual to hold a savings account with the bank,
as a way to further tweak the traditional offerings by the bank
enabling an individual to get exposure to a bank fd
without requiring to avail any of the other services offerred by the bank (and pay for them).