K. ARAVIND
Companies’ fixed deposit schemes are an option for investors who want higher interest rates than the rates offered by banks. These investment schemes earn two to three per cent more interest than the banks. For example, SBI charges an annual interest rate of 4.9 per cent on a one-year fixed deposit, while Bajaj Finance, a leading non-banking financial institution, pays 8 per cent. 3.1 per cent more interest.
At the same time, you should not choose company fixed deposits based solely on high interest rates. Such investment plans should be selected only after examining the credibility of the companies, track record and the nature of the management.
It should also be noted that the Reserve Bank of India guarantees fixed deposits of banks up to Rs. 1 lakh. But there is no such guarantee in the case of company fixed deposits. Withdrawing such deposits before maturity is not easy. Banks offer the facility to withdraw fixed deposits prematurely. It is also possible to get a loan on fixed deposits. But such facilities are not available for company fixed deposits.
In recent years, investors in some companies’ investment schemes have not been able to repay the loan on time. Some companies have also defaulted on repayments. Companies that have suffered a setback in their business and are in deep debt have failed to repay investors.
Those who invested without knowing the quality of the companies or their financial security suffered setbacks. Investors need to keep in mind that investing without checking the credit quality and rating of the company’s investment plans is a very risky venture.
There are certain conditions for companies to accept investment through fixed deposit schemes. In addition to mandating the rating of credit rating agencies for such investment schemes, there is a limit to the amount of investment that can be made in proportion to the net assets and profitability of companies. The government introduced these provisions in the Companies Act, 2013.
As an investor you should invest only in companies with an AA or above rating. Examples are fixed deposit schemes of companies such as Bajaj Finance, Mahindra & Mahindra Financial Services, HDFC, DHFL. These companies have not yet failed to repay the investment.
