Tata Motors Taking Investors for a Ride!!

The only reason why I started advising people about Investments and Insurance was to avoid people being cheated by unnecessarily complex products and misleading promotional schemes. I was going through Tata Motors Deposit advertisement the other day and found that even Tata Group, which is considered as the most ethical company, is not far behind.

Tata Finance just concluded its debenture plans and now Tata Motors has come up with its deposit issue. There are two options available 1) Giving Quarterly Interest 2) Cumulative Deposit

Though the first option is fairly simple in which one lends money and gets quarterly interest, Tata Motors has resorted to calculation gimmick for attracting investors in the second case.

The following table summarizes the yield calculation that has been advertised to misguide people. When calculated properly one understands the actual yield (rate of return) that an investor would get is about 0.6% to 1.37% less for deposits of 2 years and 3 years respectively.

Tata Motors has calculated the returns for the total period and annualized it by dividing it by no of years.

e.g. For Deposit of 3 years, the return for 3 year period is Rs. 27,696/20,000 = 38.48%. Hence, as per Tata Motors the yearly returns is 38.48%/3 = 12.83%. It seems they require some basic lessons of finance as they should have annualized it by taking square root of the no of years. In this case, take 3^rd root of 1.3848 and subtract it by 1, to calculate the yield as 11.46%.

If a Tata group company resorts to such advertisements then what can be said about the remaining India Inc!!

The print advertised that appeared is as shown below.