ICICI Advantage Deposit Scheme

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ICICI ‘Advantage Deposit' – a new product with dual benefits of a fixed deposit and a mutual fund.

Let's give you all more information about the product to help you decide if you should go for it.

What is ICICI Bank Advantage Deposit scheme?
It is a combination of a traditional fixed deposit (with monthly interest payout) and Systematic Investment Plan (SIP) of a mutual fund. The interest payout credited into your savings account will be reinvested into SIP directly.

Who should be interested?
Those of you who don’t want to risk your investment, yet like to earn better returns; should consider this product. It offers the safety of a fixed deposit and the returns of an equity fund. In addition, it counters equity-market fluctuations through SIPs.

What are the terms?
You would need to open a savings account with ICICI Bank. The deposits are available from minimum of one year to a maximum of 10 years. There is an option to renew the scheme at the prevailing deposit rates after maturity.

So, should I invest in it?
Under this scheme, the minimum investment through SIP is Rs 1,000 per instalment. So, you have to make sure that your total investment in Advantage Deposit earns a monthly interest of Rs 1,000 or more minus TDS (tax deducted at source).

Let us consider the five-year term deposit in the scheme, with 8 per cent interest rate.

ICICI Bank Advantage Deposit

Hence, you need to invest Rs 167,320 to generate an SIP amount of Rs 1,000 per month net of TDS in this scheme.

Now, let's assume that your SIP amount of Rs 1,000 was invested into ICICI Prudential Dynamic Plan (starting from Sept 2004). At the end of 5th year (Aug 2009), the final SIP amount would have been Rs 99,088, and the total maturity amount, Rs 266,408. ICICI Pru Dynamic Plan Fund has generated an annualised compounded return of 32.76 per cent over a period of five years.

Note: We have considered historical returns for the Plan and the past performance may not be repeated.

That said, there are alternatives products that you can look at which give higher returns. That is, instead of investing in the FD, you could invest in debt mutual funds, corporate FDs or other debt instruments that give you higher returns. You could then invest the higher returns into an equity instrument. The advantage, here, is twofold:
i. You can invest in debt instrument that gives higher return
ii. You can choose a fund outside of the ICICI Pru fund family

The disadvantage: You'll have to do this manually, while in Advanced Deposit scheme the money gets transferred automatically.

To conclude: Advantage Deposit investors will always have a positive spread of 0.5 to 1 per cent over other products under the current conditions.

A few things to consider:
- The minimum SIP amount of Rs 1,000 net of TDS requires an investment of Rs 167,320 which may not be a feasible amount for small investors. But, for an investment less than Rs 167,320, since the interest earned will be less than the minimum SIP amount of Rs 1,000, the shortfall in SIP amount will be covered from the balance in the savings account to which the SIP amount is debited.

- In case of premature/partial closure of the fixed deposit, the SIP will continue to be debited to the depositor’s savings account, unless the depositor informs the mutual fund/registrar of withdrawal of the original mandate.