Many companies accept Fixed Deposits from investors, typically for a short duration of 6 months to 3 years.
These are similar to bank fixed deposits but entail lesser liquidity and usually carry higher risk and return. The attractive returns on such deposits draw many investors to channel their savings into such deposits.
This results in mobilization of household savings for utilization in productive purposes by the corporate sector.
Some key features of Company Fixed Deposits are:
- Fixed deposit scheme offered by a company. Similar to a bank deposit
- Used by companies to borrow from small investors
- The investment period must be selected carefully as most FDs are not encashable prior to their maturity
- Not as safe as a bank deposit. Company deposits are ‘unsecured’
- Offer higher returns than bank FDs, since they entail higher risks
- Ratings can be a guide to their safety
DOs for investing in company fixed deposits schemes
- Do check the credit rating assigned by the Credit Rating Agencies to the Fixed Deposits being considered
- Do ignore the unrated Fixed Deposit schemes
- Do understand the background and credibility of the promoters
- Do choose a company with a better track record for similarly rated companies
- Do avoid investing in Fixed Deposits of companies whose promoters have a dubious record
- Do realize while investing in Fixed Deposits that if the company is unable to repay your money, you may end up losing it, as Deposits are unsecured
- Do refer to the investor service standards of the company
- Do lodge a complaint with the concerned regulator in case the company defaults in repayment of deposits (For listed companies, file complaint with SEBI; for manufacturing companies, file complaint with MCA; for banks and NBFCs, file complaint with RBI)
- Do state the name of the guardian in the application, if the deposit is in the name of a minor
- Do always have a nominee for the deposits made by you
DON’Ts for investing in company fixed deposits schemes
- Don’t invest all or substantial part of your savings in Fixed Deposits
- Don’t get lured by high-interest rates
- Don’t forget to check on a track record of the Company
- Don’t invest in companies that care little bout investor services
- Don’t hesitate to seek regulator’s assistance for any grievance
You can check the current interest of company fixed deposits on money control site.