Are Bajaj Finance FDs Safe For Investment?

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You may have come across Bajaj Finance FDs offering upwards of 8% interest rates on platforms like Altcase.

This is higher than the FD rates of large banks like SBI and HDFC which are quite lower than 8% as of July 2024.

This can make anyone wonder if Bajaj Finance is offering higher interest rates because they are risky. But they are not. Bajaj Finance FDs are perfectly safe for investments.

In this article, we discuss:

➡️ The FD interest rates offered by Bajaj Finance

➡️ Why Bajaj FD rates are higher than Bank FD rates

➡️ Why Bajaj Finance FDs are pretty safe for investments

Bajaj Finance FD Rates 📈

When you invest in Bajaj Finance FD, you have the option to receive interest payouts regularly (monthly, quarterly etc.). However, most investors choose to receive their entire interest payout at the maturity of the FD.

This is because even the interim interest payouts get compounded along with your principal thereby generating a bigger maturity amount for you. It also reduces the headache of reinvesting the interest payouts that you receive regularly.

So, here are the FD rates of Bajaj Finance for FDs that pay the entire interest at maturity (as of 2 Aug):

Tenure	Interest rate for regular citizens	Interest rate for senior citizens
12-14 Months	7.40%	7.65%
15-23 Months	7.50%	7.75%
24-35 Months	7.80%	8.20%
36-60 Months	8.10%	8.35%

Source: https://www.bajajfinserv.in/investments/fixed-deposit-interest-rates

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Why Are Bajaj Finance FD Rates High? 💭

The higher rates offered by Bajaj Finance can be attributed to several factors:

Lower Operational Costs Compared to Banks 📉

NBFCs like Bajaj Finance achieve cost efficiency through lean organizational structures, limited physical presence, and technology-driven operations. For instance, Bajaj Finance has about ~800 branches (as of 2023) whereas HDFC Bank has about ~8,000 branches in India.

NBFCs like Bajaj Finance often leverage digital channels and partnerships for customer acquisition and service delivery.

Different Regulatory Environment ☯️

NBFCs operate under the Companies Act with RBI supervision, while banks fall under the Banking Regulation Act.

This regulatory framework allows NBFCs like Bajaj Finance to utilize a larger portion of their funds for lending and investments which further allows them to offer high interest rates on their deposits.

Higher Loan Rates 📈

NBFCs often target niche markets or underserved customer segments that traditional banks may overlook. This allows them to charge higher interest rates on loans offered to this customer segment.

This is why NBFCs like Bajaj Finance can offer higher interest rates to their depositors than most banks.

Why Bajaj Finance FDs are Safe 🛡️

The safety of any financial institution’s fixed deposit is a function of the financial strength of the financial institution.

In the 7 points below, we demonstrate that Bajaj Finance is a strong financial institution that offers safe fixed deposits.

Highest Credit Ratings 🏅

Bajaj Finance boasts the highest credit ratings from multiple agencies:

→ CRISIL: FAAA/Stable

→ ICRA: MAAA/Stable

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These ratings indicate the highest degree of safety regarding timely servicing of financial obligations. Credit ratings are awarded based on:

Repayment History: Past performance in repaying debts on time.

Quantum of Debt: If a company has too much debt, that’s negative.

Liquidity: The company's ability to meet short-term and long-term debt obligations.

➡️

The highest credit rating of Bajaj Finance FD should give you a lot of confidence. But here are some more pertinent points…

Diverse Loan Portfolio 📚

Bajaj Finance maintains a diversified loan portfolio, which serves as a reliable safety net against stress in one of a few pockets of the economy.

Growing Customer Base 👥

Bajaj Finance has demonstrated impressive growth in its customer base, with a year-on-year(YoY) growth rate of 33%.

The NBFC has a customer base of 8.3+ crore. This growing trust from consumers is a strong indicator of the company's reliability and performance.

Assets Under Management (AUM) Growth 🚀

Bajaj Finance's AUM has shown remarkable growth, with a Compounded Annual Growth Rate (CAGR) of 23% over from FY19 to FY24.

This rapid expansion demonstrates the company's financial soundness and its ability to effectively manage and grow its asset base.

Strong Profitability 💪🏼

The company has consistently maintained strong profitability, Rs 14,451 Cr as on FY23, with steady growth in profits year after year.

This financial performance underscores the company's ability to generate returns, which is crucial for meeting its obligations to FD holders.

Stock Exchange Listing 📊

Bajaj Finance Limited (BFL) is listed on both the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).

This dual listing subjects the NBFC to rigorous regulatory oversight, including mandatory quarterly financial reporting, strict corporate governance standards, insider trading regulations, and substantial acquisition reporting requirements.

Bajaj Finance is among India's 20 largest companies (by market cap as of Aug 2024) and a vital part of the country’s banking system. This means Bajaj Finance is heavily regulated by the RBI, which provides an additional layer of security for all stakeholders, including FD investors.

To Sum it Up

Bajaj Finance FDs stand out as a compelling investment opportunity, where the marginally higher risk is overshadowed by significant benefits, especially the higher interest rates.

The company's formidable market position, sound financial health, and track record of consistent growth, coupled with its high credit ratings, all contribute to the overall safety of its FDs.