rediff.com

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  gplay

Rediff News  All News 
Rediff.com  » Getahead » All you wanted to know about company fixed deposits

All you wanted to know about company fixed deposits

Last updated on: September 17, 2010 11:29 IST

All you wanted to know about company fixed deposits

     Next

Next
Ramalingam K

Company deposits are nothing but fixed deposits in companies that earn a fixed rate of return over a period of time.

Company deposits are down-to-earth products. The influential advantage of company deposit is its simplicity. Even the most novices among the investors understand company deposits.

Ever wondered the logic behind why pure vanilla flavoured ice cream sells more than any other flavor? Similar logic is just as true when it comes to company deposits versus many other modern investment options.

With the meltdown of NBFCs (non-banking financial institutions) almost a decade ago, the company deposit market had a major slow down. Volumes, however, still remain significant and there are loyal investors who prefer company deposits to other investment products.

Click NEXT to read the advantages of company FDs

Ramalingam K, an MBA (Finance) and certified financial planner, is founder & director of Holistic Investment Planners (P) Ltd (http://holisticinvestment.in).


Photographs: Rediff Archives
     Next

All you wanted to know about company fixed deposits

Prev     Next
Prev

Next

Advantages of company deposits:

  • Assured return
  • Higher interest when compared to bank deposits
  • Low risk when compared to stock market investments
  • Service at your doorstep
  • Lock in period in most of the cases is 6 months only
  • If the interest income is less than Rs 5,000 in one financial year, then you don't have to pay TDS

Click NEXT to read about the risks



Prev     Next

All you wanted to know about company fixed deposits

Prev     Next
Prev

Next

Risks in company deposits:

Company deposits are basically unsecured. That is if the company defaults in repaying the interest or principal, the investor will not be able to recover her/his capital.

As a company deposit holder, you don't have any lien on any asset of the company, in case it goes into financial difficulties. This makes the company deposits a risky investment option.

Click NEXT to read how to identify risky company FDs



Prev     Next

All you wanted to know about company fixed deposits

Prev     Next
Prev

Next

Identifying risky company deposits:

One of the important tasks in investment planning in company deposits is to identify the risky company deposits and avoiding them. If you find any of the below symptoms in any of the company deposit scheme, then it is better to avoid them.

  • Poor credit ratings like A or lesser ratings
  • Companies making losses
  • Companies that skip dividends
  • Companies that offer higher than 3 per cent to 4 per cent of bank deposit rates

Click NEXT to read how to choose the right company FD



Prev     Next

All you wanted to know about company fixed deposits

Prev     More
Prev

More

Checklist for choosing right company deposits:

There are some good investment options in company deposits. Also there are some bad investment options. If you know how to select the right company deposit then company deposits can be really an interesting investment option in your portfolio.

You need to ignore all the un-rated companies and need to choose companies with the rating of AA or higher

  • Choose the company with better reputation within a given rating grade. If you read business papers and magazines periodically, it is not difficult for you to check the credentials of the company
  • Take the help of the qualified financial advisor in choosing the right company deposit. But mind you, there are very few reputed and qualified financial advisors
  • Company deposits need to be spread over a large number of companies in different industries. By this, you can diversify your risk. Irrespective of the rating and reputation of the company, don't invest all your investments in a single company deposit scheme
  • You need to check on the servicing level and standard of the company. You need to ignore companies that don't care or care little about issues like sending interest warrants and principal cheques
  • After investing in a company deposit, you need to constantly track the company's credit rating. The times are uncertain and downgrades are rampant
  • Check the company's balance sheet for its asset back up, profitability, reserves, existing borrowings and loans


Prev     More