The first thought that comes to the minds of most people at the mention of fixed deposit is approaching a bank. However, banks are not the only place where you can open and run a fixed deposit. Several corporates and non-banking finance houses offer investors the opportunity to open fixed deposits with them at interest rates that are at times higher than the bank rates. Some examples of these corporates that offer fixed deposit facilities include; Mahindra Finance, Bajaj Finance and LIC Housing Finance.
Questions may arise on how these deposits work? How can one participate? Are these deposits as safe as a banks fixed deposit facility? Here’s how you can invest in company fixed deposits like a pro!
Who is Eligible?
Company fixed deposits can be opened by individuals who have attained the legal age of 18, groups or registered organizations such as companies. In the case of individuals, both resident, and non-resident Indians are eligible to open company fixed deposits. For this to happen, the applicant needs to fill the necessary request documents and provide an ID which can either be a valid driver's license, passport or PAN cards.
Common Features of a Corporate Fixed Deposit
The main target of company fixed deposits is to offer customers features that enhance their security and returns. Some of these features include:
Tenures that often span from 12 months to 60 months.
A flexible minimum deposit amount. The least amount that can be deposited will vary with the company. Some require a minimum deposit of Rs. 2,000 while others may demand a minimum of Rs. 25,000 or more.
All companies offering the fixed deposits are accompanied with a credit rating from organizations such as CRISIL, which indicate how trustworthy the company is.
Once opened, subsequent deposits can be made in addition to the fixed deposit in accordance with the company’s rules.
At maturity, the company will not deduct taxes at source, but leave you with the responsibility to facilitate for such tax accountabilities.
Since these institutions are non-banking in nature, interest earned through these deposits is often channeled by direct transfer to a bank account or via a cheque.
Looking at the eligibility criteria and features, participation in corporate fixed deposits therefore is as open to the market as it is for regular bank fixed deposits
How to Make a Choice on a Good Company Fixed Deposit
To make a good choice on a company fixed deposit to invest in it is important that you consider the following:
Check credit rating. Credit rating done by institutions like CRISIL will help you understand the risks involved in as far as the credit risk is concerned. Since all company fixed deposits come with a credit rating, it is only prudent to ensure that the rating is within your risk boundaries.
Check interest rates offered. It is almost impossible to skip checking the interest rate on offer; however, you need to be careful not to be duped by market beating rates offered by lower rated companies. Although companies may at times offer higher interests than banks, the margins are not usually very far off. Where the rates are abnormally off, countercheck on other terms and find out what the catch is.
Company Deposits are a reliable investment avenue that offers fair returns. Investing in them knowledgably helps you to reap the most from your deposit.