Hyderabad: Until recent years, most people invested in fixed deposits for getting an assured income. Within a short time, the situation has changed dramatically as numerous alternative investment plans have landed in front of us. Especially, the advent of fintech firms has transformed the entire gamut of investments for the average depositor. By offering innovative plans yielding high interest, they are attracting one and all.
In general, investors look for security for their investment and an assured return. This is why many prefer safe investment plans like bank and post office deposits. Following a new awareness of financial matters, some are taking a little risk and turning towards new plans, while continuing to depend on fixed deposits. The fintech companies are exploiting this trend by offering secure alternatives to traditional fixed deposits.
The RBI-approved Non-Banking Financial Companies (NBFCs) are taking a lead in respect of offering competitive alternatives to FDs. All these NBFCs are new-age firms with a zeal to explore new opportunities in the market. For example, some firms come forward to offer home and car loans at 14-15 per cent interest. At the same time, they promise to pay 12-13 per cent interest to their depositors. We all know this is impractical and unviable. In such firms, there will be a greater risk to your deposits. If these NBFCs can't recover loans, then you may lose your principal amount as well, leave alone high interest.
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We must realise that these NBFCs just play a mediatory role between depositors and the recipient of loans. If the firm is shut down, we lose our money totally. Nobody will be able to give details of who got the loan, how much was already recovered and what happened to interest. You need not know much about opening fixed deposits in banks. If you go to your own bank where you have an account, the staff there will help to open FD in your name. It is totally different with NBFCs. Deposits are tech-driven. Agreements will be signed between the loan recipient and the Fintech firm. This complex process is somewhat difficult to understand.
The main role of NBFCs lies in connecting creditors and loan recipients. They will select the recipients of loans based on some parameters, regulations and limitations. These firms do not take stringent care that is usually taken by the banks before sanctioning loans. Hence, they face difficulties in loan recovery. The tricky part is that there will be a clause in the agreement itself that the NBFCs will have no responsibility if loans are not recovered as per the terms and conditions. So, the end loser will be the investor if anything goes wrong.
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We must make sure whether any legal safeguard is available or not. In very few instances only, they give certificates towards investments made by us. Some firms say it plainly that the agreements are the basis for all your investment. In such cases, it will be difficult to carry out a legal struggle to get back your money in unwanted circumstances.
Many firms are mushrooming these days, offering high interest. As a result, many people are putting their investments into these companies. They lose sight of the fact that risk will follow a high return plan like a shadow. Only when you are ready for risking your hard-earned money, you should explore high-interest plans.
