When one has a surplus to invest, one must take time to search for the best possible return and security. It may be that a parent starts an investment for their child’s education. They want to start deposits so that inflation does not affect their standard of living when they retire.
There are innumerable ways to chose from the saving accounts. One way is to make a Company Fixed deposit. It is considered a confident deposits (which are rather safe) with a variety of companies for a fixed term. Such deposits carry a prescribed rate of interest called ‘Company Fixed Deposit’ and can be made by financial institutions and non-banking finance companies (NBFCs). Mobilised deposits of this kind are governed by the Companies Act under Section 58A. They are not secured in the sense, that if the company defaults, the investor can’t sell the document to recover the capital. As mentioned earlier, they are considered confident deposits, but are not 100% assured.
There trick to ensure a reasonable and secure return is to select one of the more stable and known institutions dealing with company fixed deposits amongst their activities. As such deposits are governed by law, one may assume that a large or top-rated, publicly known company makes such deposit reasonably sure. In specialized institutions like FundsIndia’s deposit section, the staff may guide the depositors to exactly the kind of option they are looking for, be it industrial, construction, or production.
The rate of interest and the frequency of payment are two most frequently asked questions because not all follow the same rules. The interest may vary from 11% pro anno (PA) to 12% pa according to the length of the tenure. The interest payment is generally done quarterly and can be disbursed or added to the existing fund to create a larger deposit over time.
To choose a good company fixed deposit scheme is not easy for a layman, so it would be advisable to consult a competent person before deciding where and how much to invest. Each investment company has their specific rules and it would be careless not to investigate the reliability and profit before actually engaging in such a deposit, although they generally give better rates of return than common bank fixed deposits (FD).
Some companies would allow a substantial deposit to gain appreciation if the depositor allows certain more risky investments, but it is totally up to the investor to decide if he or she is willing to absorb eventual risk.
The amounts initially deposited may be as low as Rs. 50.000 and may go up to Rs. 25.000 for ordinary investment. A few Government investments may exceed Rs. 2 Lakh (as for example in case of the Kerala Transport Development Finance Corporation Limited). Most deposits will be cumulative and span over a period of 12 months to 15 month and some may have 500 days as maximum.
Then there are Public Issue of 100% secured National Credit Deposits (NCD), which carries interest rates up to 12.52% in effective yield. Employees and shareholders of public institutions may furthermore get 0.25%. An additional benefit is, that there is no tax deduction (TDS) on the interest if the deposits are held in a Demat account.