Company Fixed Deposits
Company Fixed deposits earn a fixed rate of return over a period of time. Financial institutions and Non-Banking Finance Companies (NBFCs) also accept such deposits. Deposits thus mobilized are governed by the Companies Act under Section 58A. These deposits are unsecured, and hence incase of any default by the company, the investor cannot sell the Certificates to recover his capital. This makes company Fixed Deposits a risky proposition for investment.
Company Fixed Deposits are adequate for regular income with the option to receive monthly, quarterly, half-yearly, and annual interest income. Moreover, the interest rates offered are higher than banks. Companies are permitted to mobilize deposits from investors as indicated below:
- Up to 25% of their net worth from their public; and
- Up to 10% of their net worth from the share-holders and others.
Net worth means paid-up capital plus free reserves, minus miscellaneous expenditure, if any.
Features of Company Fixed Deposits:
Company Fixed Deposit’s are non transferable that means there is no fear of FD receipt being stolen. In case it falls into wrong hands, it cannot be misused. The FD holder in such a case should write to the company which shall issue duplicate deposit receipt upon execution of an indemnity and cancel the previous one.
No income tax is deducted at source if the interest income is upto Rs 5000/-in one financial year. A person can spread his investment in more than one company, so that interest from one company does not exceed Rs. 5000/- .
As an investor it is always prudent to go for the company fixed deposits for a short term duration i.e. for a tenure of 1-3 years depending upon the rate of interest. This will help the investor to switch to other company if need be Recently, nomination facility has been introduced in company fixed deposits.
Where Not To Invest
- Companies which pay a rate of interest higher than 14%
- Companies which are not paying regular dividends to their shareholders. New companies belonging to first generation of promoters which have yet to prove their credit worthiness.
- Avoid private limited companies, and partnership firms and other un-incorporated bodies. Such companies are under no obligation to publish their balance sheets working results and it is, therefore, very difficult to judge their performance.
- Companies whose balance sheets show accumulated losses.
- Companies with a poor liquidity position and below investment grade rating.
Benefits of investing in Company Fixed Deposits
The benefits of company deposit are numerous like superior returns from reputed companies, fixed and assured returns,premature encashments, simplicity of transactions, TDS benefits, wide choice, All these features have made company deposits a preferred instrument of investment. Mentioned below are a few of the advantages of a company FD:
- High interest.
- Short-term deposits.
- Lock-in period is only 6 months.
- No Income Tax is deducted at source if the interest income is up to Rs 5,000 in one financial year
- Investment can be spread in more than one company, so that interest from one company does not exceed Rs. 5,000