Company fixed deposit: A deposit with fixed returns
Company fixed deposit works similar to the bank fixed deposit. Here you invest a certain amount with a company or an organisation and the company in return gives you a fixed amount in return for a specific period of time. The rate of return offered is comparatively higher than the banks. But higher returns have a higher risk involved. If the company chances to default then it gives no return and there is no chance to recover the deposits. More so, the company fixed deposits are unsecured whereas the bank FDs are secured. It is wise to check the company’s credit rating before investing in the company’s fixed deposit and choose the one above the ratings of AA or AAA.
Facts about company FDs
- Indian citizen above the age of 18 years can open the account. The account can be opened in the name of a minor by his/her guardian.
- Tenures for company FDs are variable with a minimum tenure of 1 year and last up to 7 years.
- Interest rates vary from company to company. The major deciding factors for the interest rate on company FD are the credit rating of the company and the tenure chosen by the investor.
- Accounts can be opened single or jointly.
- Company FDs doesn’t offer any tax benefits, however, premature withdrawals and nomination are possible.
Data shared by Economic times states the difference between company FDs interest rates and bank FDs interest rates. A bank like HDFC offers around a 6.5% interest rate on bank FD, however, on company FD, the interest rate offered is around 7.5 %. There are added benefits for senior citizens that make the company FDs more preferable as the returns are high.
Some of the most top rated companies offering FDs in 2017 are Shriram transport finance’s Unnati scheme offering FDs on interest rate of close to 8 %, Mahindra finance offering interest rate of 7.55%, Deevan Housing Finance Limited offering as high as 8.25 % interest rate and Bajaj Finance offering an interest rate of 8.3 percent. These companies are at present offering the same FD scheme but with the variable interest rate.
Company deposits fetch you higher returns provided the investment is made wisely after checking the credit rating of the company as that helps you take the right decision, however, the risk associated to high returns cannot be ignored at all and therefore safe investments or security should be the first priority.