Fixed deposits offered by public sector banks have always been the crowd favorite, with a large stratum of our population placing their faith and investments in them. Although there has been a slash in the interest rates offered by banks, investors continue to earn higher, assured and risk-free returns as compared to other modes of investment. However, with a fall in interest rates offered by bank deposits, investors have begun their look-out for similar, yet more profitable modes of investments, which will offer them higher and rapid returns. Thus, company fixed deposits are the best bet for such investors as they are best suited for investors who need a similar environment of investment coupled with higher returns than that offered by banks in the country. However, investing in company fixed deposits can be quite risky and it comes with its own set of pros and cons. Hence, before placing your hard-earned funds in them, it is best to review some points that will determine the face value of such an organization.
Before investing in these fixed deposits, it is important for investors to verify the authenticity of such investments. The whole point of investments is to not let the choice of opting for a personal loan or a home loan to arise so that the gap between your dreams and finances are bridged. As prudent customers you should also find information on the amount of tax that will be deductable by investing in these funds since that is what will be left in your hand. Although companies offer higher rates of interest than banks, with the deduction of taxes, you would be earning lesser interest combined with higher risk than what is offered by other nationalized banks. 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. Further, company fixed deposits are unsecured instruments which implies that you will stand to lose all your funds in case the company incurs a loss. In the case of bank deposits, the DICGC or the Deposit Insurance and Credit Guarantee Corporation of India guarantee the protection of funds up to Rs. 1 lakh in case of any default by banks, as is in the case of bank fixed deposits. Such security covers are not applicable on company fixed deposits. Thus, all your returns solely rely on the profits or losses incurred by the company. If the company makes losses, you will stand to lose your principal amount, let alone your interest income, and you will have no direct share in the distribution of assets of the company. Your chance will arrive only after all payments of secured lenders have been cleared off. Thus, stay away from unknown and infamous companies for investment in company fixed deposits.
As the risk associated with smaller companies is quite high, do not invest in them except if you are in need of regular income. Opt for cumulative schemes in place of regular income options simply because they offer safer returns, and your interest is automatically reinvested in the scheme at the same coupon rates. This in turn leads to better yields. Before placing your investments in corporate fixed deposits, verify all relevant information and tax details. Else, invest in the fixed deposits of public sector banks or nationalized banks as they are far safer and reliable alternatives.