All You Need to Know about HDFC Green Deposits
Listen to All You Need to Know about HDFC Green Deposits
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Fixed-income Investors at times take too much risk for too little gains. Often they tend to get lured by high interest rates offered on certain investment instruments, without assessing enough the risk involved.
We are living in times where retail inflation (as measured by the Consumer Price Index) is inching up and the interest rates on fixed deposits are near their multi-year lows. To make an extra buck, getting lured to a small margin of extra interest on fixed deposits is natural, but it can also prove costly.
To invest in corporate deposits, some investors rightly lay emphasis on credit rating, but the fact that credit ratings are subject to change is also overlooked. Not long ago, one AAA-rated housing financier became bankrupt in a few months' time.
Having said that, there are companies like HDFC Ltd. (India's largest mortgage lender), that have demonstrated commendable corporate governance, been transparent, followed the necessary due diligence, financial discipline and built wealth for investors' year-after-year by earning their trust.
Compared to its counterparts, HDFC Ltd. garners deposits at low interest rates and carry low risk.
Recently, HDFC Ltd. introduced a "green and sustainable" deposits programme for retail investors -- called HDFC Green Deposits.
(Image source: freepik.com; photo created by @jcomp)
What are HDFC Green Deposits?
These are deposits intended at making the world greener. In times of climate change, safeguarding our environment is the need of the hour.
The money garnered under HDFC Green Deposits will be lent to projects that support United Nations' (UNs') Sustainable Development Goals, empowering you the investor to make a positive impact on the environment and the society at large.
HDFC Green Deposits addresses two areas of the UN's sustainability goals: 1) Sustainable Cities and Communities and 2) Climate Action.
Are you wondering how?
The money raised through HDFC Green Deposits will be utilised to finance developers engaged in sustainable housing projects. It can offer loans to home buyers for buying affordable houses.
According to the United Nations (UN), Central and Southern Asia is home to 226 million slum dwellers-the third-largest slum-dwelling population in the world. And only half the world's urban population has convenient access to public transport. This highlights the scope of work required to be done in the affordable housing spacing and infrastructure for sustainable living. India's thrust on affordable housing aims at achieving the goal of sustainable cities and communities.
HDFC Ltd. may also help developers using green building materials, providing facilities like rainwater harvesting, and promoting the use of renewable energy systems amongst others in their housing and commercial projects, on priority while financing.
As you must be aware, unplanned and environmentally unfriendly growth has dented the quality of human life. Socially responsible investing paves the way for course correction; to alleviate the ill effects of the actions we are responsible for. In the world of investing, in the years to come, ESG (Environmental Social and Governance) factors would play a pivotal role.
So far, the ESG investing theme was restricted to equities. Quite a few mutual fund houses have launched ESG Mutual Fund Schemes to capitalize on the opportunities that exist within this theme. With HDFC Green Deposits, it appears ESG investing would catch up and find space even in the world of fixed-income investments. It potentially would make a positive impact on the environment and society, and therefore is a welcome initiative.
What is the rate of interest and the tenure of HDFC Green Deposits?
The minimum tenure for HDFC Green deposits is 2 years and 9 months and goes up to 10 years. These deposits are offered as special deposits, premium deposits, and regular deposits.
Special deposits offer fixed rates only, while regular deposits, come with two choices: variable interest rate option or fixed interest rates.
Table 1: Interest Rates on Special Deposits (Fixed Rates)
| Deposit Tenure |
Monthly |
Quarterly |
Half-Yearly |
Annual |
Cumulative |
| 33 Months |
5.90% |
5.95% |
6.00% |
6.10% |
6.10% |
| 44 Months |
5.95% |
6.00% |
6.05% |
6.15% |
6.15% |
| 66 Months |
6.30% |
6.35% |
6.40% |
6.50% |
6.50% |
| 99 Months |
6.35% |
6.40% |
6.45% |
6.55% |
6.55% |
Fixed rates applicable on deposits upto Rs 2 crore from August 17, 2021, onwards
Senior citizens get 0.25% additional interest
0.1% additional interest will be paid for applying/renewing through HDFC's online systems. The same shall be applicable for opting the auto-renewal facility for deposits upto Rs 50 lakh
For cumulative options, compounding frequency is annual
(Source: HDFC Ltd.)
Table 2: Interest Rates on Regular Deposits (Fixed and Variable Rates)
| Deposit Tenure |
Monthly |
Quarterly |
Half-Yearly |
Annual |
Cumulative |
| 36-59 Months |
5.75% |
5.80% |
5.85% |
5.95% |
5.95% |
| 60-83 Months |
6.10% |
6.15% |
6.20% |
6.30% |
6.30% |
| 84-120 Months |
6.25% |
6.30% |
6.35% |
6.45% |
6.45% |
Fixed and variable rates applicable on deposits upto Rs 2 crore from August 17, 2021, onwards
Senior citizens get 0.25% additional interest
0.1% additional interest will be paid for applying/renewing through HDFC's online systems. The same shall be applicable for opting the auto-renewal facility for deposits upto Rs 50 lakh
For cumulative options, compounding frequency is annual
(Source: HDFC Ltd.)
The interest rates under the fixed and variable interest rate option denote interest rates applicable for the entire tenure. However, the variable rate will be reset at the beginning of each interest period, depending on the interest pay-out or cumulative option selected by you.
For instance, if you opt for the MIPs then the interest rate is revised at the beginning of each month. The interest under the MIP option is payable at the end of each month.
The interest payment under the quarterly option happens at the end of each financial year quarter, i.e. June, September, December and March. Similarly, if you chose the Annual Income Plan (AIP), then the interest rate is revised on the first day of April every year and so on.
In the case of the Monthly Income Plan (MIP), the minimum investment amount is Rs 40,000, and for all other options, it is Rs 20,000.
Is premature withdrawal from HDFC Green Deposit permitted?
In the first three months, you can't withdraw your money from HDFC Green Deposit.
If you, as an individual investor, make a premature withdrawal request between 3 and 6 months from the date of deposit, the interest you fetch will be @3% p.a., irrespective of the rate applicable on the tenure of the deposit, while a non-individual investor won't earn any interest in such a case.
Premature withdrawal requests made after 6 months by any investor will fetch 1% lower than the interest rate applicable for the completed tenure of the deposit. And where the rate has not been specified for such tenure, the interest rate payable on your HDFC Green Deposit would be 2% lower than the minimum rate at which the public deposits are accepted by HDFC.
In the case of variable interest rate options, no additional penalty would be levied on premature withdrawals after 6 months. And the interest rate applicable on the completed tenure of the deposit will be paid to you, the investor.
Should you invest in HDFC Green Deposits?
If you are an investor who is sensitive to environmental issues, society, then HDFC Green Deposits is a specially structured deposit scheme for you.
The interest rate across the tenures is, of course, low and will barely help you counter inflation -- but note that the risk involved is also low. If you are a senior citizen, the additional incentive of 0.25% can be further enhanced by investing online, and this would prove competitive compared to the interest rate on term deposits with banks.
For instance, a 3-year deposit for senior citizens earns interest @5.65% p.a. with HDFC Bank (and for other depositors, the interest rate is 5.15% p.a.). But with a special deposit of 33 months in HDFC Green, you can fetch almost 80 basis points (bps) higher interest rate if the investment is made online.
When compared to other NBFC offerings, HDFC Green Deposits may not look very appealing. For example, a 3-year deposit with Shriram Transport Finance can earn interest up to 7.75% p.a. for senior citizens, and that with Bajaj Finserv can fetch interest up to 6.85% p.a. But remember, HDFC Ltd. has received 'AAA' ratings for its deposits programme for 27 consecutive years from two leading credit rating agencies -- CRISIL and ICRA. This builds utmost confidence and trust.
Where are interest rates headed?
Considering the present inflation-growth equation and RBI's patient and supportive monetary policy stance, it appears that the interest rates may not go up in a hurry. The fall in rates might be already behind us though.
If the stickiness in inflation stays going forward, RBI may even go for a rate hike without changing its accommodative stance. Comments of one of the Monetary Policy Committee (MPC) members in the third bi-monthly monetary policy review clearly hint at such a possibility.
Given that HDFC Ltd. enjoys the highest credit rating, any rise in the interest rates under the variable option will be modest for HDFC Green Deposits. Other corporate fixed deposit schemes having lower ratings may see a greater change in the interest rates on the comparable tenure deposits.
Thus, take a sensible investment decision by choosing HDFC Green Deposits over the other higher interest yielding options that may expose you to high risk. Under the present situation, the lower tenure options may lower the interest rate as well as the reinvestment risk.
Nonetheless, do not invest in HDFC Green Deposits in an ad hoc manner. Take into account your personal investment objectives, the financial goals you are addressing, your personal risk profile, the time to goals, and asset allocation best suited for you before investing. HDFC Green Deposits is a worthy avenue for your debt allocation.
Happy Investing!
Warm Regards,
Rounaq Neroy
Editor, Daily Wealth Letter
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