(1) Invest Rs. 222222 in Bank FD for 3 years at 7.75 % p.a Earn Rs. 17729 Interest on FD for one year.
(2) Obtain Overdraft Limit Rs. 200000 (90% of FD) to apply for IPOs and Pay Rs. 10198 Interest on OD at 9.75 % p.a. (calculated on daily balances) for a period of six months in one year. It is assumed that OD facility could be availed for not more than one- half month on average
(3) When IPO Applications are submitted under ASBA procedure, Application money is only “blocked” but continues to remain in Savings Account; hence earn Rs. 3531 Interest at 3.50 %
This approach will result in a net benefit of Rs. 11062 (Rs 17729 Interest earned on FD minus Rs. 10198 Interest suffered on OD plus Rs. 3531 Interest earned on SB A/c)
The above rates of Interest and Margin are for ICICI Bank with which I am operating. Similar arrangements could perhaps be made with any Bank. For calculation purposes, effective rates of interest are adopted after considering frequency of interest payment or compounding with the help of