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Company fixed deposits; its merits and demerits

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Published: Monday, April 30, 2012, 13:58 [IST]
 
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Company fixed deposits; its merits and demerits

As the name indicates these are fixed deposits from companies which in most cases offer higher interest rates, than prevailing in traditional instruments like bank deposits. These deposits are unsecured deposits and if the credit worthiness is not checked, may leave the depositor with loss of principal and interest.

Companies registered under the Companies Act 1956, such as manufacturing companies, NBFC, Housing Finance companies, financial institutions and government companies can offer deposits.

Investment in Company fixed deposits comes with pros and cons. Some of which we examine here below.

Merits
Generally tend to offer higher interest rates
Lock in period is 6 months
Investor can diversify the amount in different companies

Demerits
They come with high risk as they are not secured by any assets.
Company FD have no deposit assurance as bank FD's up to Rs.1,00,000 per individual your deposit are protected.
Interest above Rs 5000 will be subject to tax deduction at source
Pre-mature withdrawal of FD's are too complicated

Things to look before investing

Avoid companies offering interest rates above 14%
Check for the companies dividend payout pattern, if irregular avoid it
Check with rating of the company provided by Fitch and others
(AA or AAA scheme)
Check for the financial performance of the company
Ideal investment period should range from 1 year- 3 year

Interest rates




Companies FD



1 year



Ratings



Canfin Homes



9.75%



ICRA MAA+



EXIM Bank



9.25%



ICRA MAAA
CRISIL FAAA



HDFC



9.50%



CRSIL FAAA
ICRA MAAA



HUDCO



9.60%



FITCH FAAA



NHB



9.50%



CRISIL FAAA

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