Today we will talk about Company Fixed Deposits. There are many investors who are very much impressed by the Corporate fixed deposits and feel like they are as good as Bank Fixed deposits, but one has to understand that if company deposits offer higher interest rates, It is bound to be more riskier than normal Fixed Deposits offered by Banks. Most of the investors think that Company fixed deposits are safe just because the company which is offering these Deposits are very famous one’s and very big in Size. But that is not true ! . How to Find cheapest Fixed Deposit in India
What are Corporate Fixed Deposits
Corporate fixed deposits are normal fixed deposits offered by Companies. The interest rates offered are generally higher than Bank interest rates and can be in range from 9%-16% . Higher the interest rates offered higher are the risks involved. Why do companies have these deposits? when companies have cash crunch and require money, they can offer deposits at attractive rate of interest to common public, one of the reasons for this can be that they do not want to raise the additional capital by issuing shares. Corporate Deposits are governed as per Section 58A of Companies Act, however these are “unsecured” loans (we will talk about it) .
Risks with Company Fixed Deposits
There are two main risks associated with Company Deposits , they are :
A) Default Risk : These Company deposits carry a risk called Default Risk, which means, at maturity they might not be able to return your maturity amount and default in the payment. It can happen that company is out of cash at that time or does not have sufficient money in their hand to pay back , this can happen for many reasons like their business might not be going good that time or because of recession .
MUMBAI, MAY 19: The beleaguered CRB Capital Markets has failed to submit its plan for settlement of Rs 180-crore liabilities to fixed-deposit holders. Reserve Bank of India (RBI) is now free to move court seeking the winding up of the non-banking finance company (NBFC).Prudential Capital Markets Ltd., based in Calcutta was one of the biggest and successful NBFCs. But their reputation came under a lot of flak the moment they began to default in the payment of interests and the matured amounts. When flustered investors started queuing up to withdraw funds invested in Prudential, the company managed to stave them off by stating that it would repay 40% of the funds within a year and the remainder a year later. In some cases the cheques were issued but if they thought they were lucky, they were in for a shock for their cheques bounced.
B) Unsecured Deposits : Bank Deposits are secured by RBI up to 1 lacs rupees per branch, which means that if bank does not return you the money or goes bankrupt, RBI will pay you up to 1 lacs of deposits. There is no such Insurance on Company Deposits, hence they are totally unsecured . Link
Update from Rakesh : We have very bad experience with Midwest Iron & Steel company. My parents had invested in this company in mid 90’s and the company was defaulted in 1997. SEBI had included it in its list of vanishing companies. Its been over 13 years we have still not received any money nor do we know any status of it. I had written to SEBI but not update yet.
Caution Points
Premature Exit from Company FD’s are not that simple like Bank FD’s. You might have to run from one place to another and send loads of letters and some times even give reasons for Premature Withdrawals .
One such investor, Vidyadhar Radhakrishna Lad, a senior citizen and shareholder of the company, had subscribed for the fixed deposit scheme of Jaiprakash Associates by investing Rs 1 lakh. Despite writing to the company and running from pillar to post for two months, Mr Lad has still not received his fixed deposit receipt (FDR). Link
Make sure you also consider the credit ratings given by CRISIL and ICRA for that FD . (Understand CRISIL Ratings and ICRA Ratings)
Refer to the article below to read about Panjon Pharma Fraud in Fixed Deposits (Credit : Hemant Beniwal)
Should you invest in Corporate Fixed Deposits
There is nothing good or bad , some companies which offer Fixed Deposits are very established and are highly reputed, however you can’t take it at face value and ignore the risks involved. If you want to park money for short-term and are comfortable with the risks which come with corporate fixed deposits, these Corporate fixed deposits can be a good products for you. The point here is awareness. It’s not recommended that you put a big sum in same company. If you want to invest 2 lacs in company fixed deposits, then better invest 1 lacs in 2 different company, that would diversify your risk to some extent. Also if you are investing for some very important goal, then better settle with Bank Fixed Deposits and not Corporate deposits, it’s better to settle with 2-3% less returns then take unneccessary risk . Here are some words of caution while choosing Company deposits .
Which Company Fixed Deposits you should avoid
- Companies which offer interest higher than 15%.
- Companies which are not paying regular dividends to the shareholder
- Companies whose Balance Sheet shows losses
- Companies which are below investment grade (A or under) rating.
- Pvt limited Companies and Partnership firms as its very difficult to judge their performance.
List of Corporate Fixed Deposits
| Company Name | 1 yr | 2 yr | 3 yr |
| Ansal Properties and Infrastructure | 11.5 | 12 | 12.5 |
| Ansal Housing & Construction | 11 | 11 | 12 |
| Ind Swift Ltd., | 11 | 11.5 | 12 |
| Ind Swift Lab Ltd., | 11 | 11.5 | 12 |
| Jai Prakash Associates Ltd | 11 | 11.5 | 12 |
| Surya Roshni Ltd. | 11 | 11.5 | 12 |
| Shri Ram – Subhihska (62 Months) | - | - | 12 |
| Mukund Ltd/ Mukund Eng. Ltd(Plan B) | 10.5 | 11 | 11.25 |
| Jagatjit Industries | 10 | 10.5 | 11 |
| Jindal Stainless Ltd., | 10 | 10.5 | 11 |
See Full List of Corporate Fixed Deposits
Other Important Points
- Generally Corporate fixed deposits come for least tenure of 6 months .
- No Income Tax is deducted at source if the interest income is up to Rs 5,000 in one financial year.
- It would be wise to check company performance and movement in share prices half-yearly at least . This is for a review .
- Companies generally provide a very high commission to brokers in order to push their Fixed Deposits.
{ 47 comments… read them below or add one }
Nice article
.
Panjon Pharma(I think everyone know this name) is the latest in the list of Corporate FD Defaulters.
At the time of investment return in not the only thing that matter. Risk-Return, Tax, Inflation, Liquidity are equally Important.
Correct
I dont think its a big company , as i never heard about it . Better to take FD;s of companies which atleast are nationally and glabally known and have been in existence for more than 10 yrs .
Manish
Hi Manish,
U missed the Credit Rating aspects of Fixed Deposits. That also gives a good idea. However lot of them are not rated at all.
HDFC Ltd which are rated AAA are the most common in the market. The return is just 50 basis points or maximum 100 basis points more than Bank FDs.
Regards
Abhishek
Abhishek
Yea that slip out of my mind
. I have added it .. see the next comment also , there are good links .
Manish
CRISIL and ICRA are companies which rate the companies offering FDs.
If you see a rating for a company as FAA, FB etc by CRISIL, go to this link to understand what it means. (how safe is your FD with that company)
http://www.crisil.com/credit-ratings-risk-assessment/rating-scales-fixed-deposits.htm
If you see a rating for a company as LAAA, MAAA etc by ICRA, go to this link
and find yourself.
Regards
Venghatesan
venghatesan
Excellent , thanks for adding this valuable information , i will add it in the article itself
Manish
Hi Manish,
Nice article. Investor often think Fixed Deposit means a Gurantee of return. Can u give me any idea ,who is regulate this FD market?
Subhendu
Subhendu
They have to comply with the rules set by govt , I guess RBI should be the regulator.
Manish
Manish ..Nice & very informative article .thanks
One also needs to check whether it is a manufacturing company or a finance company. A manufacturing company is not as risky as a finance company. A finance company can just lock their “rented offices” and walk off, whereas a manufacturing company cannot just close their facilities.
Yea thats one point , thanks
Manish
We have very bad experience with Midwest Iron & Steel company. My parents had invested in this company in mid 90′s and the company was defaulted in 1997. SEBI had included it in its list of vanishing companies. Its been over 13 years we have still not received any money nor do we know any status of it. I had written to SEBI but not update yet.
Please invest in good companies only.
Rakehs
Rakesh
yea .. they are not insured by RBI upto 1 lac, otherwise you can claim it from RBI .. sad .
I am adding this example of yours in the main article .
Manish
Hey Manish,
Just a curious question… as u said that RBI insures FD of banks till 1 lakh, does this mean we should avoid investing in FD’s in heavy amounts..
what i mean is 3 FD’d of 1 lakh each is better than 1 FD of 3 lakhs…and would the government insure all three FD’s in the first instance.
Thanks
Hitesh
Hitesh
Definately .. Invest 3 lacs at one place means insurance of 1 lac . Investing 1 lac 3 places means insurance for 3 lacs . Read more details on this .
Manish
Thanks Manish
Would followup more on this..
Hitesh
If one keeps the psychology of people in mind, company fixed deposits are not a good option for investment. FDs have always been considered safe, before poeple became aware of company fixed deposits. Till date general perception about FDs is that if you want to put some money aside safely and earn something on it get an FD. No one bothered to do basic research for an ordinary thing like FD. That feeling still persists. I guess lots of people treat company FDs in the same way. Lack of information, we don’t know how it works.
Punchline: “a” is missing
Shweta
yea .. You are very correct , FD are so simple products that investors do not bother to research at all .. And the thing is they have not heard a lot about defaults in FD’s from company , So this mistake happens .
manish
Well my family have banks fds worth rupees 5-6 lakhs to be precise
4.5 lakhs on my sister name
1 lakh each on my mother and father names
I was planning to sift to company fds .As there return as u showed looks attractive
But after reading lot of articles on internet…I am having doubts
I just had shortlisted jp associates and unitech to make fds worth around rupees 1-2 lakh from our total investment
Have read jp associates e.g
but still from your perspective .What is your take on this company’s fds
And regarding bank fds insured upto 1 lakh .Even i guess in old cases people who have lost their money in duped banks found it hard to get their insured money or were given just part
Sohil
You can go ahead with Company FD if you are ok with those risk involved . Defaults are not very high , its happens rarily , but there are issues which you need to be aware of and are ready for it .
RBI does not insure each and every small bank , but it has to be a nationalised or a bi private bank like ICICI , AXIS or HDFC .
Manish
Ya thanks for all your particular comment
Actually my mother have already 40k deposit in tata motors and so far from past 9 months we are happy with their service….
Will take care while i make any decision in investing in company fds…
By the way looking for article to invest in gold in demat form specially the recently introduce NSEL one manish
Also nice blog have added in my bookmark will share on financial forums your links to promote same!
Hi all,
Regarding TDS ..If any one is aware..Plz update..
If interest earned in financial year is less than 10K then also do I need to fill 15G form ?
Or in that case 15G need not to be filled?
Regards
Yogesh
FOr company fds its 5k not 10k as bank interest
to manish chauhan,
want to know more about the diff debt products, different types and when to invest in these. also if u throw some light on trading of bonds and how it takes place in the mkt.
Vishal
too many things
. First have a look at different articles already written , you will have a good idea on debt products , regarding trading of bonds , its out of scope of my knowledge, check Deepak Shenoy blog for that .
Manish
Do you have idea how much investment advisor get paid as agent commission for selling companies FDs? Probably you may list per rating ( AAA, AA+, AA, etc ) of the FDs or take an example for few companies in each of these rating categories.
Boby
It can range upto 4-5%
Manish
Hi manish,
what about Fixed deposits in co-operative banks? Are they safer than company fixed deposits. RBI has good control over co-operative banks and also offer little higher than Nationalise banks.
You views please.
Amol
Manish,
Panjon Pharma Ltd. is listed on the website link you have provided
Look at http://personalfn.com/fixedincome/productarena/co-dep1-r.asp?orderby=ir1%20desc
somebody should caught him there
Jitesh
please let me whether FD with Ansal Properties is safe or not
See this : http://www.jagoinvestor.com/2010/04/are-company-fixed-deposit-safe.html
Manish
Hi Manish,
I have a fixed deposit of 4 lacs which just matured from SBH and planning to put it back into a FD for another 12 months. I came across Shriram Unnati Fixed Deposit. I am not willing to invest into a corporate FD if there are any risks involved like defaults or getting the maturity amount after full term. I would rather prefer a bank FD. Is this Shriram thing a safe scheme? Thanks.
Its not a large NBFC in India and hence carry same risk which are mentioned for corporate FD’s , however this seems to be a good one
http://money.outlookindia.com/article.aspx?266512
Manish
Hi Manish,
In the past I have always invested in Bank FDs, but now for the 1st time I am planning to invest around 50K – 1 lac in corporate FDs, due to the higher interest rates offered by them.
I went through your above article and found it extremely useful. I am planning to invest in FDs by Unitech or Jai Prakash Associates. I tried to find the ratings for them on CRISIL, but couldn’t locate the same (chkd out the link ‘Ratings List > Credit Ratings list’ but couldnt find these companies), can u plz guide me or provide a link of corporate FD ratings on the CRISIL site? Also which amongst Unitech & Jai Prakash Associates is safer according to you?
Regards,
Vaibhav
Vaibhav
I think you should search more as even I am not able to locate the links , please ask your question on the forum , you will get the answer there : http://www.jagoinvestor.com/forum/
Manish
Manish,
Will post the query on the forum.
Thanks for that quick reply
Dear Manish,
You have mentioned that bank FD is insured upto 1 lac as per RBI guidelines .. Suppose bank X is giving good rate of interest and I would like to deposit 2 Lacs .. So is it a good idea to deposit 1 Lac in one branch and 1 Lac in another branch of same Bank X ? Please advice.
MOhan
No , its only 1 lac in all the branches of 1 bank . so better do it in 2 different bank
Manish
Dear Manish,
i am prepared to invest my 10 lakhs in 1) Ansal Properties 2) Plethico Pharma each five lakhs for one yeat. but i am serching in net your comments i have read then i change my plan to invest after i receive your valuable advice only.
1 yr looks very small time frame to give any comment , the better answers can come from our forum : http://www.jagoinvestor.com/forum/
Recently came to know that a company called Muthoot Finance accepts Gold Bonds(secured debentures) at very attractive rates as high as 12% with the option to receive interest in monthly,quarterly,half yearly intervals. These bonds are backed by charge on the assets of the Company and has the option to withdraw before maturity as well as to avail loans up to 90% value of the deposit.
Looked interesting to me. I wanted to ask people here if have invested in them and share their opinion regarding its safety.
Regards.
MANOJ
Manoj
Did you look at the assets of companies ,are they lesser than their loans ? Will u be the first person eligeble for the money incase some bad thing happens to company ?
Dear Sir,
I have worked earlier sub broker to fixed deposits. Now I am working in Saudi Arabia
and here good opprtunities to canvass FDR for Companies.
Do You know any good Broker Company willing to give sub Broker
Best regards
Vincent
No , i dont know
I had opted for a FD with Unitech for 1 year in Sep 2010. Everything went smooth, I got the FDR in time.
I had submitted the same for redemption in Sep 2011. Unitech has still not returned me the principal back. The customer care is giving excuses every time. I have been following up for this since Oct 2011. Oct and Nov are gone, but no use. The reasons (excuses) given to me are that they are upgrading the software etc….I feel that there is a severe funds crunch. The customer care religiously listen to the good, bad and sad word thrown at them and give me a revised commitment in return! The latest commitment that I have from them is 5th Dec. All the best to me!
I am still behind their customer care. I wanted to escalate this to the responsible managers running the show. I got a mobile number and email ids to complain. But the person with that mobile number never picks up the call. The daily reminder mails that I sent are not replied (not even the first time when I smelt bad)
This is the status. I am sharing this with you in this forum for the following:
1. make the larger public aware of the problem at Unitech on returning the money
2. is there someone with some acquantaince at Unitech to pushhhhh?
3. whom do we go and complain to with this arrogance of a company that has taken loan from me and not obliging?
Jago Investor…Jago
Veng
its a wrong thing that company is doing . You should now complain to RBI on this and also threathen them on this . But before you do that remember that you have invested money in a COMPANY FD , its not like a BANK FD which is so secure . Its less secured that a bank FD and whatever is happening with you is one the possibilities of company FD
Manish