Pros and cons of investing in corporate deposits

With liquidity being tight, India Inc is resorting to corporate deposits to raise funds. So, what are the pros and cons of investing through this route? Corporate deposits require a minimum deposit, meanwhile, bank deposits, including FDs, are insured up to Rs 1 lakh
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Dec 11, 2008, 04.21 PM | Source: CNBC-TV18

Pros and cons of investing in corporate deposits

With liquidity being tight, India Inc is resorting to corporate deposits to raise funds. So, what are the pros and cons of investing through this route? Corporate deposits require a minimum deposit, meanwhile, bank deposits, including FDs, are insured up to Rs 1 lakh

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Pros and cons of investing in corporate deposits

With liquidity being tight, India Inc is resorting to corporate deposits to raise funds. So, what are the pros and cons of investing through this route? Corporate deposits require a minimum deposit, meanwhile, bank deposits, including FDs, are insured up to Rs 1 lakh

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Here is a verbatim transcript of Haresh Sonejiís comments on CNBC-TV18. Also see the accompanying video.

Corporate deposits are financial product understood by small retail investors. At present, liquidity is tight. But India Inc is looking to raise capital. At present, few companies are looking to raise capital through this route. But going forward more companies are likely to take this deposit route.

 

So, what are the key features and benefits of corporate deposits?

Interest rates of corporate deposits are higher than bank fixed deposits. A 10-12% interest rate is offered for deposits ranging for one to three years. Rates may be higher by 200-400 bps versus bank FDs. The option of monthly income is available on deposits over Rs 1 lakh. Employees and senior citizens also get a higher interest rate of 0.5% on these deposits. Both cumulative and non-cumulative schemes are available in these deposits.

 

Negatives:

Corporate deposits require a minimum deposit. For instance, investors have to invest a minimum of Rs 20,000 in Tata Motorsí corporate deposit scheme and can invest in multiples of Rs 10,000.

 

Bank deposits, including FDs, are insured up to Rs 1 lakh. A company may or may not consider pre-mature encashment of deposits.

 

So, what is going ahead for corporate deposits?

Bank FDs are expected to decline further. Corporate deposits from quality companies are safe but some risk remains.

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