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5 things to know before you invest in company fixed deposits

5 things to know before investing in company fixed deposits
Company deposits are more lucrative then bank fixed deposits, simply because they offer higher interest rates then bank fixed deposits. However, you should not go only by the rate of returns, simply because you have to check other things like security, TDS etc. Here are the 5 things that you need to know before you invest in company fixed deposits.

Company fixed deposits are unsecure deposits

Company fixed deposits are unsafe, because they are not secured deposit. What this means is that they are not secured against the assets of the company. The chances of default in payment of interest and principal is significantly higher then banks.

TDS is deducted for interest over Rs 5000 for company FDs

Unlike bank fixed deposits, TDS on company fixed deposits is deducted if your interest income crosses Rs 5000. In bank fixed deposits, TDS is deducted only when the interest income crosses Rs 10,000.

Interest rates are higher in the case of company fixed deposits

Interest rates are generally higher by 1-4 per cent in the case of company deposits, because of the nature of risk involved.

Company fixed deposits could have a rating

Unlike bank fixed deposits, company fixed deposits have a credit rating. There is a careful evaluation done by rating agencies like CARE and ICRA, following which the deposits are rated.

Companies have restrictions on raising deposits

Companies are currently allowed to garner 10 per cent of the aggregate of paid-up share capital and free reserves if the deposits are from shareholders or guaranteed by directors. Non-Banking Finance Company can accept deposits upto following limits:

» Equipment Leasing Company can accept four times of its net owned fund.

»Loan or investment company can accept deposit upto one and half time of its net owned funds.

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