Limited Period Offer:Be a PRO for 1 month @Rs49/-Multiple payment options available. Know More

Investing in company FD? 6 things you shouldn't miss

The major benefits of investing in company fixed deposits are high interest, flexibility of tenure and no Income Tax is deducted at source if the interest income is up to Rs 5,000 in one financial year.

October 10, 2014 / 04:01 PM IST

Adhil Shetty
BankBazaar.com


There are a number of investment options for people these days. However, bank fixed deposits (FDs) are still one of the most popular options as here your capital is secure and you get a good amount once the FD gets matured.


However, if you are looking for much higher returns, then company FDs are a viable option for you. In the past few years, company FDs have become quite popular and at times are far more lucrative than the ones being provided by the private and public sector banks. Company Fixed Deposits are fast becoming a popular investment option due to the fact that they offer high returns, but you need to exercise utmost caution and take an informed decision.
The major benefits of investing in company fixed deposits are high interest, flexibility of tenure and no Income Tax is deducted at source if the interest income is up to Rs 5,000 in one financial year

No matter how lucrative a company FD may be, before investing there are certain points that you should take into consideration:


Company FDs are risky: Company FDs are tempting due to the high rate of interest that they provide as compared to FDs offered by private and public sector banks. However, they are an unsafe investment option.  As they are not secured against the assets of the company, the chances of default in payment of interest and principal is significantly higher than banks.


TDS deduction: You have to be careful regarding the deduction of TDS. In the case of company fixed deposit, TDS is deducted if your interest income crosses Rs 5000, but in the case of a bank fixed deposit, TDS is only deducted after your interest income crosses Rs 10,000.

Close

Offer higher rate of interest: If you are looking for high interest returns, then company FDs are the perfect investment option for you. As the risk involved in company FDs are much more as compared to bank FDs, the interest rates are generally higher.

Need for Safeguards: You should always check the rating of the company before investing in that company’s fixed deposit. Financial institutions such as CRISIL and ICRA rate the companies and their FDs. If a company FD has a rating of AAA, it means that it is a safe and secure investment. However, tread with caution if the rating is lower as there could be numerous risks involved.

Check the background of the company: After all, it is your money that you are investing and as such you need to be extra careful. Do not rush into anything. Do thorough checks before you invest your money in a company FD. Do a thorough research on the company’s background, past performance, customer service and financial performance. Also do a proper research on the directors or promoters of the company. This will give you a fair idea whether the company is secure enough for investment purposes.


If the company is low on rating, go for a short term FD: If you plan to invest in a company which is low on ratings it is always advisable that you go in for a short term investment. If you feel that the company is not performing well, you can always opt for another company. But in case of long-term investment you will be stuck with the company for a long time and if the company defaults or goes bankrupt you may end up losing a substantial part of your investment.


In the ultimate analysis, since company fixed deposits are unsecured investments, you run a higher risk of losing your money than a bank fixed deposit, but interest rates or returns are far higher. Especially in these times of inflation, returns from bank fixed deposits may eventually turn out to be very small. But if as an investor you value safety most, then you should go for bank deposits. In any case, you should seek professional advice before investing in company FDs.

Before investing in any company fixed desposit, please carefully go through the application form, financial statements and other information pertaining to the company offering the fixed deposit.

To sum up: An informed decision and cautious approach would ensure safety for your money as well as lucrative returns!

BankBazaar.com is an online marketplace where you can instantly get the lowest loan rates , compare and apply online for your personal loan, home loan, car loan and credit card from India's leading banks and NBFCs.

first published: Oct 10, 2014 04:01 pm

stay updated

Get Daily News on your Browser
Sections