2 Govt Backed Fixed Deposits You Should Look For 8% Return

The Reserve Bank of India (RBI) left key interest rates constant in its bi-monthly monetary policy review on April 8, 2022. This really is a big plus for fixed deposit (FD) investors, as interest rates on FDs are unlikely to fall considerably lower. Fixed returns, on the other hand, are still negative since investors are not earning real returns due to growing inflation. In February, the CPI-based inflation rate was 6.07 percent. What this implies is that even while bank interest rates are rising, achieving a real return is still difficult.

To achieve inflation-beating returns, we have looked to government-backed fixed deposits, which provide a maximum return of 8%. As we will discuss here on govt backed fixed deposits of Tamil Nadu Power Finance and Infrastructure Development Corporation Limited (TNPFCL) and Tamil Nadu Transport Development Finance Corporation Ltd (TTDFC), the interest rate of 8% is much higher than what is offered by the public and private sector banks, and the deposit security assurance is also higher.

Tamil Nadu Power Finance and Infrastructure Development Corporation Limited (TNPFCL)

This government-backed non-banking financial company (NBFC) offers two types of fixed deposits: cumulative and non-cumulative. Interest on cumulative deposits is compounded quarterly and paid at maturity, as the name implies. The duration of cumulative deposits is flexible, ranging from 1 to 5 years, with interest rates ranging from a minimum of 7.00 percent to a maximum of 8% for the general public, with elderly citizens receiving an additional 0.5 percent interest rate. So, if one puts a fixed deposit of Rs 50,000, the maturity amount after 60 months will be Rs 74,297.

Non-cumulative deposits, on the other hand, are allowed by the corporation, and interest is paid monthly, quarterly, or yearly. The duration of these FDs is 2, 3, 4, and 5 years, with a minimum interest rate of 7.25 percent and a maximum interest rate of 8.00 percent for the general public and a 0.5 percent additional interest rate for senior citizens.

Investors who wish to make a fixed deposit with TNPFCL can do so by downloading the company's official mobile app from the Google Play store and creating an account using their PAN details. So, in addition to a digital facility and an interest rate of 8%, you can now beat inflation and earn real returns to grow your wealth more effectively.

Cumulative Interest Rate

Period (Month)	Interest rate in %
12	7
24	7.25
36	7.75
48	7.75
60	8
Source: tnpowerfinance.com

Non-cumulative Interest Rate

Period (Month)	Interest rate in %
24	7.25
36	7.75
48	7.75
60	8
Source: tnpowerfinance.com

Tamil Nadu Transport Development Finance Corporation Ltd (TTDFC)

This government-backed non-banking financial company (NBFC) also provides a fixed deposit with two options: Period Interest Payment Scheme (PIPS) and Money Multiplier Scheme (MMS). Interest is paid monthly, quarterly, or yearly on the PIPS plan, and the minimum deposit amount permitted is Rs.50000/-. The company's interest rates were last amended on January 18, 2021, and a normal customer can earn a maximum annual return of 8.24%, while senior people can earn a maximum annual return of 8.77%. The general public will get an interest rate of 8% per month, whereas elderly persons can receive an interest rate of 8.50 percent per month under the scheme. The deposit period of this scheme ranges from 24 months to 60 months monthly with interest rates ranging from 7.75% to 8% for regular customers and 8.25% to 8.50% for senior citizens.

The interest on the MMS plan is compounded quarterly at the applicable rate of interest and paid along with the principal upon maturity. The minimum amount of money that can be deposited is Rs.50000. The deposit term is between 12 and 60 months, and the regular interest rate is between 7.00 percent and 8%, with senior people receiving 7.25 percent to 8.50 percent. Investors who want to invest in a TTDFC fixed deposit can go to the company's website and download the form, which they can then submit along with the required documents.

Period Interest Payment Scheme Interest Rate

Regular Rate of Interest (per annum)
Period	Monthly (%)	Quarterly (%)	Annually (%)
24	-	7.25%	-
36,48	7.75%	7.75%	7.98%
60	8.00%	8.00%	8.24%
Senior Citizen
Period	Monthly (%)	Quarterly (%)	Annually (%)
24	-	7.50%	-
36,48	8.25%	8.25%	8.51%
60	8.50%	8.50%	8.77%
Source: tdfc.in

Money Multiplier Scheme (MMS) Interest Rate

Regular Rate of Interest (per annum)
Period in months	Basic Rate P.A (%)	Effective Yield P.A (%)
12	7	7.19
24	7.25	7.73
36	7.75	8.63
48	7.75	8.99
60	8	9.72
Senior Citizen
Period in months	Basic Rate P.A (%)	Effective Yield P.A (%)
12	7.25	7.45
24	7.5	8.01
36	8.25	9.25
48	8.25	9.66
60	8.5	10.46
Source: tdfc.in

Should I Invest?

In terms of fixed deposit interest rates, a return of 8% with government-backed stability is harder to achieve in the current climate. You can now expect a maximum interest rate of 5 to 6% from both public and private sector banks. The above two companies are backed by the government of Tamil Nadu so deposit safety remains positive to some extent.

However, you should consider the risks associated with NBFCs, such as credit risk, interest rate risk, equity/commodity price risk, liquidity risk, and operational risk. You may reduce the risks by employing the "FD ladder" method. No doubt, if you stay invested for the long term of 60 months, you can earn an interest rate of 8%, but if you are a risk-averse investor, you should consider the FD laddering strategy.

Let's say you have a lump sum of 5 lakhs in hand and instead of investing it all at once for 5 years, you split it into 5 FDs of a lakh each, the first for 12 months, the second for 24 months, the third for 36 months, the fourth for 48 and the fifth for 60 months. After your initial one-year fixed deposit matures, you can renew or reinvest it for another five years similarly you can do the same with the rest of the deposits, creating enough liquidity for your investment while minimising the risks associated. Investors with a lump amount of funds to invest in a fixed deposit would benefit from this approach.