Company fixed deposits are risky and if a particular company is doing badly, there is a chance of a default in payment of principal and interest. Company deposits are not secure deposits as compared to a bank deposit.
1) Credit rating
One of the most important things to check in a company fixed deposit is the credit rating. Most companies are assigned a credit rating by the leading credit rating agencies like Crisil, ICRA and Care. "AAA" rating indicates the highest safety with regards to timely payment of interest and principle amount.
Crisil assigns a "C" rating for those companies that are at a very high risk of default. There is no question of investing in such companies.
Most of the analysis is done by these rating agencies and hence it would eliminate the need for an analysis from the end of the investor. Over the years the analysis done by these agencies are also known to be reliable.
2) Check for track record of the company
Also look at the track record of the company. If it has been consistently paying dividends, then we can say to some extent that the company will be able to service its deposits. Look also for the cash flows and the pedigree.
For example, presently Mahindra and Mahindra Financial Services and Bajaj Finserv are offering fixed deposits. These deposits can be consider as fairly safe considering they have a very strong pedigree. For example, Mahindra Finance comes from the Mahindra Group and Bajaj Finance from the Bajaj stable.
3) Check Interest payment
The one good thing about company deposits is that you can make a choice of when you want your interest rate payments done. For example, you can choose a monthly option, a quarterly option or simply an annual option.
If you are a retired person you might want to opt for a monthly or half yearly payment. In case you are a person who is already working look for cumulative option so as to create wealth.
4) Early withdrawal
Look for early withdrawal options and the amount you would lose therein. For example, some company deposits do not allow withdrawal before a period of three months. On the other hand there are many companies who offer you a very dismal interest rate of just 4 per cent, if you withdraw the amount before 3 months. Hence, it is best to read the fine print before investing. You can ask your financial advisor all of the above points.
Opt for ECS
If you are going in for regular interest rate payments, it would be wise to opt for ECS payment. This is because otherwise every month or every quarter you may have to wait for your cheque and then have the same deposited in the account. Chances of it getting lost in post is also eliminated.
Make sure that you correctly mention your account number so as to facilitate the payment.