Company Fixed Deposits
The deposits offered by companies
for a fixed term carrying a prescribed rate of interest is called Company Fixed
Deposit. Financial institutions and Non-Banking Finance Companies (NBFCs) also
accept such deposits. Deposits thus mobilised are governed by the Companies Act
under Section 58A. The interest
rates offered are generally higher than Bank interest rates and can be in
range from 9%-16% . Higher the interest rates offered higher are the risks
involved.
RISK:
These deposits are unsecured,
i.e., if the company defaults, the investor cannot sell the documents to
recover his capital, thus making them a risky investment option.
BENEFITS:
- Fixed Return on investment
- Relatively Safe and stable return on Investments
- No Income Tax is deducted at source if the interest income is up to Rs 5,000 in one financial year
- Investment can be spread in more than one company, so that interest from one company does not exceed Rs. 5,000.
TENURE: Company Fixed Deposits can
be accepted by a Manufacturing Company having duration from 6 months to 3
years. Non-Banking Finance Company can accept deposit from 1 year to 5 years
period. A Housing Finance Company can accept deposit from 1 year to 7 years.
PAYOUTS: Interest is paid on
monthly/quarterly/half yearly/yearly or on maturity basis and is sent either
through cheque or ECS facility.
RATIONALE: If you want
to park money for short-term and are comfortable with the risks which come with
corporate fixed deposits, these Corporate fixed deposits can be a good products
for you.
But Which Company Fixed Deposits you
should avoid:-
- Companies which offer interest higher than 15%
- Companies which are not paying regular dividends to the shareholder
- Companies whose Balance Sheet shows losses
- Companies which are below investment grade (A or under) rating.
- Pvt limited Companies and Partnership firms.
TAX: TDS is
deducted if the interest on fixed deposit exceeds Rs.5000/- in a financial year.
Caution Points:Premature
Exit from Company FD’s are not that simple like Bank FD’s. You might have to
run from one place to another and send loads of letters and some times even
give reasons for Premature Withdrawals .
