When debts like personal loans, home loans are not the exact sources from where you wish to raise you funds for financing your requirements, then strictly stick towards investing. Company fixed deposits are definitely a trend to watch out for. Although there was lack of action in this arena for quite some time, these fixed deposit schemes have got back in form and are ready to take over the market. It has also become in vogue for companies to raise funds through fixed deposit schemes by borrowings from the public. Many of these top-of-the-cream companies have been successful in acquiring huge sums of money from the public in this manner, indicating the trust people are placing in these firms with respect to consistency and profitability. Moreover, no one has expected such a surge in popularity especially since there is no centralized or regulatory body in the country to authorize and verify the amount of funds raised by these companies in this manner. One of the major reasons why companies have opted for this route of raising funds, instead of other institutional sources is mainly because of the liquidity crunch in the market in recent times. With companies offering high interest rates that are too hard to resist, people are placing their funds in these companies as well.
Before investing in these fixed deposits, it is important for investors to verify the authenticity of such investments. They must also find information on the amount of tax that will be deductable by investing in these funds. Financial advisors are of the notion that these company fixed deposits are best suited to the needs and requirements of the low-income group owing to the taxes imposed on them. For instance, people who earn less than Rs. 3 lakh or Rs. 5 lakh per year can opt to invest in company fixed deposits as they receive taxes of only 20% on their investment. Investors belonging to a higher class of income or other high-net individuals must avoid investing in these fixed deposits as they will be liable to charges of 30% taxation on their interest income per year. It is therefore advisable for all such individuals to place their funds in the fixed deposits of public sector banks. Although companies offer higher rates of interest than banks, with the deduction of taxes, you would be earning lesser interest than that offered by other nationalized banks. Public sector banks are offering attractive interest rates on fixed deposits, offering investors a powerhouse combo of assured and risk-free returns. Such investors can also make investments in other avenues such as debt schemes offered by mutual funds and other FMPs or Fixed Maturity Plans.
In order to avail maximum benefits from corporate fixed deposits, investors need to strike a balance in their expectations for returns with the credit rating of the instrument. In order to do this, you must first comprehend the purpose and functioning of a credit rating. Higher credit ratings imply that there is lower risk involved in such an investment, in addition to greater repayment tendencies. Investments with lower credit ratings may seek to lure customers with an offer to provide higher interest rates, yet, they lack the assurance that an investor would get his principal within the promised period of time.
Although corporate or company fixed deposits were quite the favorite a few decades back, they lost their momentum due to declining interest rates. With the recent credit crunch, investors have begun to place their investments in these fixed deposits again, owing to a rise in their interest rates. Before placing your investments in them, verify all relevant information and tax details. Else, invest in the fixed deposits of public sector banks or nationalized banks.