I recently received a comment from a reader about investing in company fixed deposits, and I thought I should do a post about some important things to keep in mind while investing in company fixed deposits.Â So, here is a post with a few pointers on company fixed deposit.
1. Company fixed deposits offer better interest rates than banks
You probably know this already but it is an important enough point to be on top of the list. Company fixed deposits will give you a higher return than comparative bank fixed deposits. This is because of the additional risk, for example the DHFL fixed deposit that was concluded a few months ago offered interest rate of 9% per annum, when the highest any bank was offering was 7%.
2. Additional risk
Company fixed deposits have higher risk than bank fixed deposits because these type of deposits are unsecured, if the company goes bust you will lose your money, and unlike banks, they don’t have any backing of the RBI. A lot depends on the performance and reputation of the company of course. A strong company that regularly pays out dividends and has no losses is perhaps a good bet, whereas a company that has made regular losses should raise eyebrows.
3. Company fixed deposits are rated by Rating Agencies
The rating agencies hand out ratings to the particular offering, and that can help you make a decision. For example, The Shriram Transport Finance FD scheme was rated tAA (investment grade) by Fitch. These ratings can help raise flags if any offering is rated low, and you can possibly avoid such fixed deposits.
There was a comment that asked what the RBI rating of a fixed deposit was, but RBI does not rate company fixed deposits, and in case of default by the company – RBI is not going to back them in any way.
4. Company fixed deposits may be unsecured
Company fixed deposits may be unsecured debt, which means there is no underlying collateral, and in case of default, you won’t get the funds back by selling off your documents.
5. TDS on Company Fixed Deposits
If the interest you get from the deposit is less than Rs. 5,000 in a year, then there won’t be any TDS on it. You can think about spreading your investments in multiple fixed deposits if you foresee a situation where your interest is going to be larger than Rs.5,000 from one fixed deposit.
6. You could keep a shorter horizon
Normally, aÂ higher time period will get you higher interest rates, but if you are not very comfortable with investing money in a company fixed deposit then you can select a shorter time frame like aÂ year.
Like most investing decisions, whether you invest in these things or not, and how much money you do will depend on your particular circumstances. If you prefer safety over everything else, then it is best to leave these things alone. If you have a moderate risk appetite then you might as well try investing money with some of the better known companies.
Image: Bhautik Joshi
Update: The earlier version said that company fixed deposits are always unsecured debt. This is not always true, in some cases they issue secure debt as well.
66 thoughts on “6 things you should know about company fixed deposits”
I am a retired person with no pension income. One agent has suggested me to invest in DHFL Fixed deposit and Shriram Transport Finance company with yearly interest option. I want to invest about 2 to 3 lakhs which are lying in my bank where interest rates have gone too low. Will it be good decision to invest in private FD in current economic situation in India? I want to get expert opinion.
PLEASE BE VERY CAREFUL WHEN YOU INVEST IN PRIVATE COMPANY FIXED DEPOSITS. THEY ARE INSURE AND CARRY LOT OF RISK.
LATELY, THOUSANDS OF FD HOLDERS IN PUNE ARE IN TROUBLE WHEN THEY INVESTED IN PRESTIGIOUS COMPANY CALL “DSK GROUP”. THE COMPANY IS IN BUSINESS FOR 30 YEARS AND CHEATED FOR 400 CR. TO ITS FD HOLDERS.
Search on internet for D S Kulkarni fraud.
Reg Fixed Deposits at SHRIRAM TRANSPORT FINANCE.
I regret to state that I have not received the interest amount of Rs.1977/- credited to my SB Account with Andhra Bank, Malkajgiri Branch., Unfortunately they say that it has been credited to my old account with BOI Malkajgiri Branch, which was closed on 24 11 2017 by me. Inspite of sending letters, email and phone calls, they are not responding to me properly. Even the banker BOI, has sent me a mail that the account closed and the money returned to the sender (SHRIRAM TPT FINANCE)
Pl help me. Whom should I complain for this error?
Thank you for such a valuable input.
I invested in one company fixed deposit 3 years ago (March 2014) as our first experience with this company FD in year 2010-2013 was good (D. S. Kulkarni Developers Ltd Fixed Deposit).
In current case, they gave us post dated cheques for Principle amount and we choose ECS payment for interest component. Lately, in March 2017 the FD’s got matured. However, company position is not so good and they requested us to renew it for another year OR at least 6 months due to liquidity issue (They sent letter for that). It’s Public company (D.S.K. Developers). They have many more companies in different sectors.
What are our options ? I learn that company fixed deposit are not secured and are not backed by RBI. However, in this case we have post dated cheques from the company. Does that gives us some power to fight the case. If the cheques are dishonored by the company can we go to court? In our case “The cheque is issued towards discharge of a debt or legal liability.”
Here is what I read online
According to Section 138 of the Act, the dishonour of cheque is a criminal offence and is punishable by imprisonment up to two years or with monetary penalty or with both.
If payee decides to proceed legally, then the drawer should be given a chance of repaying the cheque amount immediately. Such a chance has to be given only in the form of notice in writing.
The payee has to sent the notice to the drawer with 30 days from the date of receiving “Cheque Return Memo” from the bank. The notice should mention that the cheque amount has to be paid to the payee within 15 days from the date of receipt of the notice by the drawer. If the cheque issuer fails to make a fresh payment within 30 days of receiving the notice, the payee has the right to file a criminal complaint under Section 138 of the Negotiable Instruments Act.
Will really appreciate your guidance
I want to know about Track Record of Tamil Nadu Power Finance & infrastructure development corporation ltd in connection with their FD.
DO they return their principal & interest on due dates or do they default in timely payment.
I have a fixed deposit with Ashok Leyland Limited since 1986. I believe this company has closed down. Please guide me as to how to make this claim through RBI or any other authority.
Helios & Metheson not paying F. D. Amt. & interest also. We must inform the ministry at Delhi so that they must take strict action against co. earliest.