Company FD





A company's credit history, financials, promoters' background and liquidity can help you pick the right fixed-deposit scheme

 

At present, investment experts are advising their clients to get locked into company deposits before an interest cut comes into effect.

While the State Bank of India offers an interest of 8.75% on fixed deposits with 1-3 year maturity and financial institutions are paying up to 9.25%, manufacturing firms at 10.25-11% are paying considerably more.

However, don't get swayed by interest rates alone. There are a host of factors that need to be considered before you invest in a company fixed deposit scheme.

CREDIT RATING

Fixed deposit schemes are graded by credit rating agencies such as Crisil, India Ratings, Fitch, CARE and others. Checking the ratings is the first step towards selecting a company fixed deposit scheme.

For instance, DHFL is rated AAA by CARE. This rating indicates the highest degree of safety vis-a-vis timely servicing of financial obligations, and hence it carries the lowest credit risk. If you want to invest in a company deposit as part of your retirement plan and you have 30 years to go, you can invest up to 30% of your deposit portfolio. If you are investing in company deposits with a horizon of three years, you can invest 50% of your overall deposit allocation.

However, investments should only be made in well-rated deposits--AA and above. The New Companies Act 2013 has made it mandatory for companies to get themselves rated to raise money through fixed deposits.

COMPANY QUALITY

Always check the group back ground and the business you are in vesting in. Check the promoters' history. A company with a low credit rating is likely to offer higher rates to woo investors.

LIQUIDITY

l The lock-in period of a company de posit determines how liquid the product is, that is, how easily you can get your money back. Most de posit schemes have an initial lock-in of three to six months.

INTEREST PAYMENTS

Company fixed deposit schemes can e pay interest monthly , quarterly, anunually, half-yearly and cumulatively .

Those who need regular additional income--freelancers or retirees can opt for periodic interest pay ments. However, benefits from fixed deposits with cumulative interest rates are considerably larger as the interest paid is ploughed back into the deposit account and the deposit holder benefits from compounding.

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