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S. Vaidya Nathan

INVESTMENTS can be considered in the one-year, non-cumulative deposit as well as the three-year cumulative deposit option of M&M Financial Services. At 7.5 per cent, the two-year option offers 50 basis points more than the one-year option.

But investors who are comfortable with such a time period may be better off locking their funds for one more year. This will fetch them an effective yield of 8.24 per cent per annum.

The one-year option provides higher rates than that offered by banks as well as most companies that accept fixed deposits.

This is suitable for investors looking for a shorter tenure. At 8.24 per cent, the three-year deposit offers a yield that is attractive in the interest rates' milieu.

However, investors seeking fixed income investment options may be better off choosing small saving options such as Kisan Vikas Patra (KVP), ahead of such fixed deposits.

The risks are virtually nil in KVP, as it is backed by the Government of India. Its yield is comparable to that offered for three years in the fixed deposits market. Options such as M&M Financial Services can be used to diversify the fixed income portfolio.

The three-year yields are likely to comfortably match up to the returns that debt funds may generate.

It may, however, be better to restrict exposures to M&M Financial' s deposits to about 10-15 per cent of the intended investments. The company can be reached at M&M Financial Services, Mahindra Towers, Worli Road No.13, Mumbai 400 018.

M&M Financial funds vehicles — primarily of its parent company, Mahindra & Mahindra. But over the past 15 months, it has moved into financing of passenger cars of other producers as well.

The sheer size of its operations (disbursements of about Rs 1,600 crore in 2002-03), the fine rates at which it has been able to access funds, the fund support extended by the International Finance Corporation and the backing of M&M, are positive factors for investors intending to make fixed deposits.

Even between 1999 and early 2002, when the automobile industry was going through a rough patch with slump in volumes, M&M Financial managed to sail through comfortably.

Its monopoly in financing M&M vehicles at outlets across the country provided adequate space for revenue growth. This has helped neutralise steady compression in spreads in the last four years.

The ability to cope with weak industry phases is important, as the auto sector is highly cyclical. But this is not a cause for worry for the next one year. Investors have no reasons to be troubled over debt servicing.

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