Invest in Company Fixed Deposits to Earn High FD Interest |
Posted: July 24, 2017 |
Fixed deposits have been a popular investment and savings option. The assured returns that you earn from a fixed deposit in the form of FD interest, deposit insurance coverage, flexibility in tenure and the facility to take a loan are some of the attractive features that they hold. You have the choice to hold fixed deposits with banks or with companies in the form of Corporate Fixed Deposits. These are deposits accepted by companies as a means to raise capital. Company fixed deposits also offer a higher interest rate. The deposits are governed by the Companies Act, 1956 under Section 58A. Unlike fixed deposits with banks/NBFCs, which are secured (to the extent covered by deposit insurance), company deposits are unsecured. This means that if you have invested in a company fixed deposit and the company defaults, you can’t recover your deposit. This makes them a risky investment option. However, if you study the track record of companies and their performance, along with the rating accorded to the fixed deposit scheme, you can be in a better position to choose the right company deposit and earn high returns.
Advantages of Company Deposits 1. These deposits give you good returns as these carry high interest rates Company Fixed Deposit Interest Rates In India
Just as banks differ in their fixed deposit rates, according to tenure and deposit scheme, company deposits also offer different rates according to the tenure of the deposit. On a minimum investment of Rs.10,000, DHFL Limited offers interest at 7.75% for 1 year, 7.8% for 2 years and 7.85% for 3 years. While high interest rates are attractive, keep in mind that company deposits are a risky investment. Before you compare the interest rates, analyse the performance of the company in question and how its earlier deposit schemes have fared. Most importantly, look for the credit rating for the deposit scheme assigned by CRISIL or ICRA. A high rating is an indicator that it’s safe and you can go ahead with the investment. How much return you earn on maturity of the company fixed deposit can be calculated using a FD maturity amount calculator.
Are Company Deposits Risky?
Well, if you want a higher return, you need to take a higher risk. Company deposits run the risk of defaulting. There can be many reasons a company might default—recession, shortage of cash or bankruptcy. What happens is that you neither get the principal or the interest (company deposits are cumulative).
Secondly, these are unsecured deposits. In the unfortunate event of the company being liquidated, you lose your money. RBI does not extend deposit insurance to company fixed deposits. Before investing in company fixed deposits, follow the checklist: 1. Avoid those that offer a ridiculously high interest rate2. Avoid companies whose balance sheet reveals accumulated losses 3. Avoid companies which have not been regular with their dividend payments 4. Avoid companies whose fixed deposit schemes do not carry even the minimum credit rating.
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