Introduction to Company Fixed Deposits

Company Fixed Deposits, Bonds
Company fixed deposits are the fixed deposits with the companies similar to bonds. These companies can be financial institutions, the non-banking financial companies, manufacturing companies or any companies allowed to raise to capital through company fixed deposits. Fixed Deposits in companies earn a fixed rate of return over a period of time which is termed as maturity period. Financial institutions and Non-Banking Finance Companies (NBFCs) also accept such deposits from the common investors. These deposits are governed by the Companies Act under Section 58A. These are unsecured investment i.e., if the company defaults, the investor cannot sell the documents to recover his capital, thus making them a risky investment option.

Benefits of Investing in Company Fixed Deposits

  • Offer high Interests 
  • These are Short-term deposits 
  • No deduction of Income Tax at source up to Rs 5,000 p.a. on the interests for one financial year 
  • Relatively short lock-in period of only 6 months 
  • Investment can be spread in more than one company, so that interest from one company does not exceed Rs. 5,000.

How to Choose Right Company Fixed Deposit Offer?

It is very important to choose right offer as this is an unsecured investment option and huge risk is associated with these investments. Check these criteria before selecting any offer:
  • Company fixed deposits are insured for Rs 20,000 only unlike Rs. 1,00,000 for bank deposits.
  • Check the rating of the offer and reputation of the groups as well as the size of the company.
  • Prefer to invest into big companies.
  • Check the financial of the company.
  • Check the dividend history.
  • Check the pervious offers and issues relating to the fixed deposits.
  • Check the market conditions.
  • Compare the interest rates offered by the company with prevailing market rates.
  • Avoid offers with lower ratings.
  • Avoid offers with very high interest rates.
  • Prefer public limited companies.
  • Avoid new companies, unregistered bodies.
  • Avoid companies with accumulated losses or liquidity problems.

Periodic Review of Investment

Periodic review of investments into company fixed deposit is imperative. You must ensure that you continue your investment only when there have been no additional risks that cropped in after the investment. Also don’t put your all the money into one company fixed deposits. Go for many company deposits.
  • Unlike bank deposits which are insured up to Rs 1 lakh, the CFDs are insured up to Rs 20,000. Restrict your investment to this amount in one company or slightly higher based on your risk appetite.
  • Stick with reputed names.
  • If the interest rate differential between a bank FD and CFD is slightly high, a six-month or 12-month deposit may be considered after taking into account the associated risks. Avoid locking-in funds for a longer tenure in them. Remember, higher the ..

  • Unlike bank deposits which are insured up to Rs 1 lakh, the CFDs are insured up to Rs 20,000. Restrict your investment to this amount in one company or slightly higher based on your risk appetite.
  • Stick with reputed names.
  • If the interest rate differential between a bank FD and CFD is slightly high, a six-month or 12-month deposit may be considered after taking into account the associated risks. Avoid locking-in funds for a longer tenure in them. Remember, higher the ..

Watchouts
If one is interested to invest in a CFD in spite of the risks involved, here are a few tips:


Watchouts
If one is interested to invest in a CFD in spite of the risks involved, here are a few tips:

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