Company deposit schemes to lock in your money

Deposit(s) in companies that earn a “fixed rate of return” over a period of time are called company fixed deposits.

June 19, 2015 2:26 IST | India Infoline News Service
As interest rates on bank fixed deposits fall, many investors are flocking to company deposit schemes, which offer relatively more attractive yields. Company deposit schemes are a unique investment option, which is available in India only. 
Deposit(s) in companies that earn a “fixed rate of return” over a period of time are called company fixed deposits. Manufacturing companies, financial institutions and non-banking finance companies (NBFCs) accept such deposits. Over the years, several companies have resorted to tapping public savings by way of floating company deposit schemes, primarily to meet their working capital requirements.
Several corporate deposit schemes of renowned companies are currently open, offering up to 9.5 per cent yields. Many of these schemes also carry high ratings from the credit rating agencies, which show relative security for investor money.
Acceptance of deposits by companies were earlier governed by the applicable provisions contained in the Companies Act, 1956 and now by the Companies Act, 2013 and the Companies Acceptance of Deposit Rules (currently, Companies (Acceptance of Deposit) Rules, 1975.
These deposits are unsecured in nature. However, there are certain proposed provisions included in the Companies Act, 2013, wherein it is likely that the said deposit could be secured. There are two types of corporate deposit schemes – cumulative and non-cumulative. Cumulative schemes are like any other fixed deposit scheme, where the interest and the principal are paid as a lumpsum amount on maturity of the scheme. The non-cumulative scheme pays interest periodically depending on the plan.
Some of the benefits of investing in company fixed deposits are that they offer higher interest rates and are short-term schemes with a minimum lock-in period of six months. No income-tax is deducted at source on these schemes if the interest income is up to Rs 5,000 in a financial year. But interest income from company deposits is fully taxable and, therefore, investments in such schemes are not favoured by individuals in high tax bracket as post-tax returns often do not beat inflation.
Company deposit is a variant of bank deposit, where instead of making a deposit with a bank, you make a deposit with a listed company or in other words, you give an unsecured loan to a company.

By nature, company deposits are unsecured loans. Therefore, it is prudent to invest in deposit schemes of reputed blue-chip companies only. Generally, company deposit schemes are for short- to medium-term of minimum six months to maximum three years.
Despite certain shortcomings like fully taxable interest and unsecured nature of investment, company deposit schemes are still the favourites of thousands of retired pensioners, senior citizens, housewives and even the common man.

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