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How To Get Better Returns On Fds

Using Leverage And Arbitrage As

Nri’s

Funds at 1:1 or 1:2 leverage which increases the yield
2x-3x. Arbitrage: UAE banks offer overdraft or term
CA Vaibhav Jain loans on FDs (80-85% of the FD amount) @1.3-2.0%
per annum. This can be reinvested in FDs at 5-6%
increasing the yield to 8-9%.
Leverage and Arbitrage Combined: The biggest
We have studied topics like Leverage and Arbitrage opportunity came my way when I started trading
while studying and have recommended these to derivatives in India on the NSE Stock Exchange. I used
organizations. However, we rarely use these concepts this opportunity to combine the Arbitrage on interest
for our personal investments. This article is to generate rate differentials with the leverage provided by the
awareness based on my personal experience of last 12 Exchange.
years being an NRI, how we can use these concepts 1. I deposited 1.2 Cr with bank as an FD at 5.4%
with the products offered in the market to generate
returns much better than Fixed Deposits that we 2. I took a loan of 1.0 Cr in UAE at 1.3%
already have in India. Leverage: Leverage means loan 3. I deposited this 1.0 Cr with the broker at 5.1%
facility by banks on existing FDs or investments. The
additional funds given by banks are reinvested into 4. The broker gave me 100% as margin to trade in
same fixed deposits yielding much higher returns on Futures and Options
our investment. 5. I had to put 10 lacs as cash deposit to safeguard any
negative M2M
In 2013, SBI in UAE approached me for a product as
follows: 1. I would invest say 500k USD 2. SBI UAE 6. I was able to earn 2% per month on my trading
would offer me a loan of 4.5mn USD @4.5% 3. Entire
amount of 5Mn would be deposited as FCNR in India in 7. This yielded a whopping 27% return on my initial FD
my name at 5.4% 4. The yield on this leverage of 1:10 of 1 Cr vs 5.4%
(500k : 4.5mn) was 13.5% My USD 500k became USD Conclusion: We normally prefer to park our savings in
837k after maturity of 5 years. Fixed Deposits in India as these are considered safe
and provide a fixed return to us with Nil capital erosion.
Similar products are offered by other banks now as However, being an NRI, we are in an excellent position
swap products (INR JPY) providing a yield of 8-9% to take advantage of the products offered by banks to
vs 5% in FD. UAE banks also offer leverage loans on us which can multiply the returns on the same deposits
investments made via them on Mutual Funds or Debt
with minimal or no risk at all.

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