Fixed Deposit

In our product basket, we have products like Rated Corporate FD of HDFC, DHFL, PNB, Mahindra & Mahindra etc for Low Risk Appetite Investors.

Features

Term: The term of company fixed deposits are usually less because when it comes to these deposit schemes the performance of the company and rating may change with time. So as a matter of insecurity shorter terms are preferred. The term as regulated by RBI cannot be less than 12 months or more than 5 years.

Types of company FD: There are two types of fixed deposit schemes namely cumulative and non-cumulative fixed deposit schemes.

  1. Non Cumulative schemes as the name suggests pay off the interest earned on investment on regular basis (half yearly basis or annual basis) so the interest will not get acquired on principal to earn higher interest in the years to come.
  2. Cumulative fixed deposit scheme on the other hand where the interest accumulates with principal so as to earn higher returns when compared to non-cumulative plan. This scheme pays interest accrued on deposit schemes on maturity of the deposit.

Rating of a company: There are certain institutes (CRISIL, ICRA etc) that rate a company based on net owned fund (NOF) of the company. The companies are rated based on certain ceilings and slabs (ex: NOF more than 200 lakhs be rated in certain category) and based on the rating a person may decide whether he should invest or not in a company.

Interest rates: Interest rates on fixed deposit schemes offered by a company are higher than regular banks. This is one of the major reasons that people are interested in these schemes these days. The interest rate offered on the FDs is limited to a maximum of 12.5% by the Reserve bank of India and this figure can vary with time. A person has to stay updated about this information before depositing in these schemes. The interest rates available today in market range from 9% to about 12.25%. (coupon)

Pre-mature withdrawals: Premature withdrawals are permitted in these schemes and the lock in period of these schemes will be 3 months. Interest accrued and penalties are as per the terms and conditions of the company.

Benefits of Company fixed deposit

There are few benefits of company fixed deposit that makes it preferable over other counterparts.

  • Interest rates in general are 2 to 3% higher than bank fixed deposits
  • On a short term they earn better income with good liquidity
  • The deposit scheme also has nomination facility
  • The application process and eligibility clauses are much simpler than those of regular bank fixed deposit scheme