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Sowmya Krishnan

SUNDARAM Finance has reduced interest rates on deposits by almost 150 basis points during 2001.

Despite the steep fall, the fixed deposit programme of Sundaram Finance is a good investment option as it is one of the few safe and credit-worthy fixed income options available.

Considering the company's track record and reputation, the risk is very low. It is suitable for investors in any risk class, as the returns offered are comparatively reasonable for shorter tenures.

Recommendation: Though the FD programme appears to carry negligible credit risk, investors can look at shorter tenures (one or two years). This is because given the fluid interest rate scenario, it may not be prudent to lock into any investment option for long. It may be better to retain the flexibility to re-evaluate options after a year or two.

Scheme features: Sundaram Finance accepts cumulative and non-cumulative deposits up to four years. The interest rates are 9 per cent, 9.5 per cent, 10 per cent and 10.5 per cent for one, two, three and four years respectively. Interest is paid at quarterly rests. A monthly payment option is also available, but only for three- and four-year tenures.

For the cumulative option, the interest rates translate into yields of 9.3 per cent, 10.35 per cent, 11.5 per cent and 12.85 per cent respectively. The minimum deposit is Rs 10,000 and thereafter in multiples of Rs 1,000.

Business: The company's primary business includes hire purchase and lease financing of commercial vehicles, cars and machinery. Tough competition and depressed commercial vehicle and car sales have pressured top- and bottom-line growth. Though commercial vehicles sales picked up marginally in the past few months, the sustainability of this trend is open to question.

Financial performance: The financial performance for the half-year ended September 2001 was not very impressive. Sales improved 3.07 per cent to Rs 230 crore. Higher provisioning and interest costs hit profitability. Despite a two-fold increase in `other income', the net profit dropped 2.2 per cent to Rs 21.14 crore. Sundaram Finance has a good repayment track record and, hence, is a good investment option for the conservative investor.

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