Borrow Through Your Investments When In Need, Says Larissa

If problems exist so do their solutions. In this case, your best bet will be to opt for those investment instruments which also give the facility of a loan, should the need arise. No doubt, you lose out by way of hefty interest payments. But then, do you have a choice?

Company deposits: Lets talk about company fixed deposits. These are fast becoming the most lucrative form of investment with so many companies competing with each other in mobilising funds. Non-banking Finance Companies (NBFCs) have been given total freedom in fixing their interest rates on deposits of maturities of one to five years.

 

Take, for instance, the interest rate offered by Reliance Capital Ltd. The company is offering 15 per cent for one year and goes up to 20 per cent for a five-year maturity (threshold deposit amount is Rs 5,000 with multiples of Rs 1,000 thereafter). This will work out to an annualised yield of 29.77 per cent.

Now if you go in for a fixed deposit with a company, you will be entitled to a loan as per the Reserve Bank of India guidelines. However, check out the restrictions which are present. To begin with, loans are given only after three months from the date of deposit. Second, you cannot get any amount that you wish for. The maximum that is granted as a loan should amount to 75 per cent of the amount that is deposited. So if you deposited Rs 30,000 with a company, they will be able to grant a loan of Rs 22,500. Not too bad.

And what will that cost you? An interest rate that is two per cent above interest rate payable on the deposit. Which means you have to add two per cent extra to the rate that you would have received from the company. So if you are enjoying 20 per cent per annum, you will end up paying 22 per cent annually. Quite a steep price to pay for getting into debt, but then it is still an option for those who need one.

Bank deposits: But of course, if you are convinced that banks make the safest custodians, then try the fixed deposits of select banks. It works in the same way as the company fixed deposits. The amount that you deposit will continue to earn the designated rate of interest and you can take a loan on it.

Standard Chartered Banks Cluster and Citibanks Unfixed deposits, to name just two, also give an overdraft at a rate of two per cent above the rate that they are offering.

But there is a silver lining. With fixed deposits (company or bank), you will not really lose out should you take a loan. Assume you are getting a 12 per cent rate of interest on a deposit of Rs 1 lakh. You take a loan of Rs 15,000. You end up paying 14 per cent on this amount which is Rs 2,100. But you continue to earn an interest of 12 per cent on the total Rs 1 lakh. So you still get Rs 12,000 per annum making your net earnings add up to Rs 9,900.

Mutual funds: Then there are the mutual funds which have started providing investors with this facility. PNB Mutual Fund offered loans against their EGF 96 tax saving scheme. This facility is available only after three years from the date of allotment. And the loan facility will be available up to 50 per cent of the NAV or the market/repurchase price, whichever is lower.

Alliance Capital Mutual Fund was also wooing investors with a somewhat similar carrot for its Alliance Capital Tax Relief 96 scheme. Thanks to a tie-up with Countrywide Consumer Financial Services Ltd (CCFSL), eligible investors who purchase units will receive unique privileges from CCFSL, giving them access to a loan facility to buy a variety of consumer goods.

The benefits are, namely, a pre-approved limit for a loan subject to specific information, a