Know Everything About Company Deposits

Jun 23, 2011     Posted under: Investment






Pin It


Company Deposits are simply nothing but fixed deposits in companies that earn a fixed rate of return over a period of time. Company deposits are really down-to-earth products. The influential advantage of the company deposits is its plain simplicity. Company deposit is understood even by the most novices among the investors community.

company deposits 258x300 Know Everything About Company DepositsHave you ever wondered the logic behind why pure vanilla flavored ice cream sells more than any other flavor? Similar logic is just as true when it comes to the company deposits vis-a-vis many other modern investment options.

With the meltdown of NBFCs almost a decade ago, company deposit market had a major slow down, but volumes still remain significant and there are loyal investors who prefer company deposits to other investment products.

Advantages of Company deposits:

  • Assured return
  • Higher interest when compared to bank deposits.
  • Low risk when compared to stock market investments.
  • Service at your doorstep.
  • Lock in period in most of the cases is 6 months only.
  • If the interest income is less than Rs.5000 in one financial year, then NO TDS.

Risk in Company Deposits:

Company deposits are basically unsecured. That is if the company defaults in repaying the interest or principal, the investor will not be able to recover his capital. As a company deposit holder, you don’t have any lien on any asset of the company, in case it goes into financial difficulties. This makes the company deposits a risky investment option.

Identifying Risky Company Deposits:

One of the important tasks in investment planning in company deposits is to identify the risky company deposits and avoiding them. If you find any of the below symptoms in any of the company deposit scheme, then it is better to avoid such company deposit schemes.

  • Poor credit ratings like A or lesser ratings.
  • Companies making losses.
  • Companies that skip dividends.
  • Companies that offer higher than 3% to 4% of bank deposit rates.

Checklist for choosing right company deposits:

There are some good investment options in company deposits. Also there are some bad investment options. If you know how to select the right company deposit then company deposits can be really an interesting investment option in your portfolio.

  • You need to ignore all the unrated companies and need to choose companies with the rating of AA or higher.
  • Choose the company with better reputation within a given rating grade. If you read business papers and magazines periodically, it is not difficult for you to check the credentials of the company.
  • Take the help of the qualified financial advisor in choosing the right company deposit. But mind you, there are very few reputed and qualified financial advisors.
  • Company deposits need to be spread over a large number of companies in different industries. By this, you can diversify your risk. Irrespective of the rating and reputation of the company, don’t invest all your investments in a single company deposit scheme.
  • You need to check on the servicing level and standard of the company. You need to ignore companies that don’t care or care little about issues like sending interest warrants and principal cheques.
  • After investing in a company deposit, you need to constantly track the company’s credit rating. The times are uncertain and downgrades are rampant.
  • Check the company’s balance sheet for its asset back up, profitability, reserves, existing borrowings and loans.

Every investment has its distinct features and benefits. Likewise each investor has specific risk taking ability and personal needs. Professional investment planning needs matching of the product benefits and features with the financial objectives of the investors. So one need to weigh the various alternative investment options like bank deposits, debt funds vis-a-vis company deposits before making a choice.

 Know Everything About Company Deposits

Ramalingam K

Founder and Director of Holistic Investment Planners (P) Ltd., a firm that offers Financial and Wealth Management Services. An M.B.A., graduate and CFP certified Professional. 11 years of experience in financial and investment planning.

More PostsWebsite

Possibly Related Articles:

Free Subscription

Get articles in your inbox.

Enter your email address:

Facebook Recommendations

Tweets

Sponsors