As investments in equities plummeted down due to the global economic meltdown, people were looking for other modes of investment that had performed relatively well despite the twists and turns of the market. Investors have been disappointed with the relatively poor performance of the economy in recent times, and their performance has solely been characterized by inconsistencies and unsustainable returns. In such a scenario, investors have found a safe haven in the world of corporate fixed deposits, and they are finding quite a lot of takers amongst a lot of investors in the country, especially among the group of retail investors. Financial observers and analysts have been lauding the performance of these corporate fixed deposits, and many of them are even advising their clients that investments in them is way to make profits in today’s market scenario. Corporate fixed deposits are definitely the best option for people who need assured and consistent returns, but lack the desire to associate themselves with more risk. After the deplorable performance of equities in the market, people are seeking to move away from that world, looking for other viable risk-free investments. However, in recent times, a lot of people have burned their hands owing to the loss of money in these funds. Many people have shown blind faith in these companies and ended up losing all their funds as companies failed to roll out any profits and entered a state of unrecoverable loss.
Companies turn to the public in order to raise funds for an array of purposes like expansion requirements, starting a new business venture, to repay a loan, or to simply meet their working capital requirements. Essentially, they borrowed funds from the public as bank borrowings had become quite expensive owing to the high rates of interest. Also, many companies prefer this method of borrowing as it far less complicated, making them less accountable and questionable for any unaccounted loss. With the Reserve Bank of India’s directions to emphasize on the submission of all due documents, after which a thorough analysis and verification of documents will be conducted, and loans will be processed, making it a complicated and time consuming process for companies. Also, in this manner, the Reserve Bank of India ensures that the funds are utilized towards a genuine cause and are not simply smuggled for other purposes, something that is not possible with company fixed deposits. While company fixed deposits definitely offer higher rates of returns than that offered by banks, bank fixed deposits are far less risky than company fixed deposits. You also need to find out the rating of such a firm as it helps you assess the worthiness of the company. Generally, higher the rating, lower will be your return and vice-versa. Bank deposits are usually protected under the Deposit Insurance and Credit Guarantee Corporation or the DICGC for investments as high as Rs. 1 lakh adding more security to the already safe bank deposits. Investors must not be blinded by high interest rates as if a company turns out to be in a bad financial state, then not only will you lose your interest, but also your principal amount of investment.
If the credit rating of the company continues to move in a downward spiral, it is best to withdraw your funds from the fixed deposit of such a company. You can keep an eye on the credit rating of the company by logging on to the website of the rating agency, to which the company has been certified. Conduct adequate research before investing in a company fixed deposit. Do not wait until all your investments are on the brink of getting wiped out.