APART from banks, even Non Banking Finance Companies (NBFCs) offer fixed deposits.
What is a company fixed deposit (FD)? How does it work? Is it safe? Let's answer these questions on company FDs.
What is a company FD?
It is a fixed deposit scheme offered by a company. It works similar to a bank deposit where you earn interest income.
It may not be as safe as a bank deposit. This is primarily because banks in India have the backing of the central government. Company deposits enjoy no such benefit.
Furthermore, company deposits are 'unsecured'. This means, you have no lien on any asset of the company, in case it goes into financial difficulties and is wound up.
How do I find out if a company FD is safe?
NBFCs that offer FDs need to mandatorily get them rated by rating agencies such as CRISIL, ICRA, CARE, etc. However, manufacturing companies do not have any such compulsions.
Check the rating of the FD before you put your money. For instance, a company FD with a AA rating can be considered a good investment.
Also, check the company's past record in making timely interest payments before you invest.Returns offered by company FDs?
Company FDs offer much higher returns than bank FDs, since they entail higher risks. The higher the risk, the higher is the interest rate offered. So, be careful before choosing a company with say a 15 per cent coupon rate as against one with a 11 per cent coupon. While the higher return may be tempting, the safety is lower. Since you are investing in FDs because you are risk averse, it may make more sense to go with companies that have high ratings.
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Disclaimer: The contents of the article or are for information purpose only and are in no way meant to be advisory in nature. The author does not claim responsibility for actions taken by readers on the basis of the Article. Please consult your financial advisor for your personal money management.
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