Jagoinvestor

April 4, 2010

Are Company Fixed Deposit Safe ?

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)

Fixed Depoits fraud from Panjon Pharma .

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.
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161 Comments
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N.G.Bhat
N.G.Bhat
7 years ago

I have deposited rs80000in Plethoco Pharma .Though matured two years ago till now they have not refunded the money .Deposit receipt was sent to Bajaj Capital for necessary action There is no communication either from them I am a senior citizen retired from service. Otis very difficult for me to lead day today life with meaner pension of rs 1750. Kindly advise me and help me sir
N.G.Bhat Karnataka

Ashutosh
Ashutosh
8 years ago

Hi Manish,

I have gone trough all articles about corporate fixed deposits. However I wish to know how one should invest in them? Do we need a demat account for that? I checked that ICICI direct online option requires folio number, while their is a physical form that can be submitted in ICICI direct branch. HDFC website says that you can invest via trading account.

Kindly guide me how to invest in them? Is their any way to invest without a demat/trading account?

Pukhraj
Pukhraj
8 years ago

I have invested in shree ram transport & finance limited fd. It has matured but has not been paid by stfc so far. Company FDs are very risky in India.

V SREE RAMA MURTHY
V SREE RAMA MURTHY
8 years ago

I am a senior citizen with FDs in IDBI BANK & TN POWER FINANCE AND INFRASTRUCTURE DEVELOPMENT CORPORATION, CHENNAI. Are they safe or I should withdraw and put them SBI

V SREERAMAMURTHYVELLANKI
V SREERAMAMURTHYVELLANKI
Reply to  Jagoinvestor
8 years ago

THANK YOU MANISH CHAUHAN JI. THANK YOU ONCE AGAIN.

Mskalra
Mskalra
9 years ago

I have FD with JP industries.
Repayment on matured FD is delayed for almost 6 months.
Is there anything we can do to get payment in time.
Is this company going to dupe the investers

Pushpa
Pushpa
9 years ago

Helios and Matheson IT ltd is a fraud company and has cheated the employees and investors. Investing in any of their product or working with H&M is risky and waste of time and money.

http://www.heliosmatheson.sundesign.in/

Prakash Sagar
Prakash Sagar
9 years ago

Dear Manish,

Thank you for an informative article educating article above.

My reason to connect with you is to explore possibilities of initiating proceedings against Jayprakash Associates & Birla Shloka, between the two I have deposited a total of 100,000 which has been long due and yet remains unpaid.

Would appreciate if you can either provide any assistance or connect me with someone who can help me get my money back from them

Anticipating your earliest positive response

Regards
Prakash

ANURAG
ANURAG
Reply to  Jagoinvestor
8 years ago

Ansal properties & Ltd is a ford compony it has not refund my FD No 95399 amount which was due on 03 Dec 2014 not yet refund. plese

NS
NS
9 years ago

My parents have invested in FDs in Helios & Matheson. They had issued PDCs for interest & FD maturity amount. But at the time of maturity the cheques have bounced. The company office in Powai is not picking up phones, the emails bounce back. The agent asked us to give the company some time & hold on. But after waiting for three months, the next quarter cheques have bounced again. Can you guide me regarding the procedure to be followed.

Rewa Shankar Gupta
Rewa Shankar Gupta
9 years ago

I have invested the following amount in FDR of Plethico Pharma and I have sent these matured FD through Bajaj Capital but nothing has been done by the company. Number of reminders have been sent but no reply:
Name FDR No. Date of Investment Amount Maturity
Krishna Gupta 7170 22.6.2011 Rs. 3 Lac 22.6.2014
Rewa Shankar Gupta 7171 do Rs. 3 Lac 22.6.2014
-do- 23581 20.9.2012 90,000/-(commulative)

ANURAG
ANURAG
Reply to  Rewa Shankar Gupta
8 years ago

Ansal Properties & infrastructure Ltd is a ford company. i have fixed Rs 55000.00 by Deposit No 95399 on 03 Dec 2013 for 01 year, one year 02 months months has been laps but Ansal Properties & infrastructure Ltd new delhi not refund my amount. Please complain against said company and refund my amt as soon as possible

DB DESAI
DB DESAI
10 years ago

After reading these comments and reading innumerable such cases in newspapers/TV and referring other stories in different media I feel there is not much difference in educated and uneducated, urban and rural, techsavy and oldfashioned, dhoti pagari and jeans tops, dehati language and english speaking, low income and high income, govt servant and corporate world employees when it comes to GREED. It makes them all blind and prompts them to jump into the pit with their money. I am really sad to learn these stories only because these are all hard earned, honestly saved amounts going into the hands of the thugs. But when will India learn? I have seen the same people making same mistake next time. LALACH BURI BALA HAI. There are ample ways and means to check the safety of your investments and there are ample ways to earn high returns with regulated risk rather than putting it into dubious operators, hands. Investors prefer to “SO” than JAGO” , unfortunately.

Abhishek V
Abhishek V
Reply to  DB DESAI
9 years ago

I have a difference in opinion and am only playing a devil’s advocate here. A “JAGO-ed” person can also fall into such trouble which may be caused due to change of wind in market conditions. There can be cases where a well established, well paying, never defaulted company can go through to hard times resulting to such defaults. Of course, there are many companies who have poor corporate governance and ill intent. However, to many a general statement and ridiculing distressed people here is only adding insult to injury!

Sunita
Sunita
10 years ago

My FD with Ansal Properties matured in May 2014. Till now I have not received my maturity amount. I am calling them regularly but there is no response. I am thinking of going to CLB. Beware of Ansal properties.

u k saluja
u k saluja
10 years ago

I would appreciate if you could kindly write about Micro Technologies India Limited and AVON Corporation Limited, Mumbai who have not been paying back money to their matured FD Holders for very very long time. AVON given FD for one year on 28/3/12 which was extended on their own upto 28/3/17. Micro Tech.did not pay interest for two quarters and also redemption money not paid for over six months now. Both companies gone into liquidation. Bajaj Capital ltd were following up fds when petitions were being submitted by many FD holders to CLB in 2013. Both complanies now with liquidator. Poor FD holders especially senior citizens suffering. CLB giving status of cases as”closed”. No one there to help. What to do please request all concerned to take up with MCA/CLB/SEBI/ and help old people and others on priority. Thanks.

Neha Mehta
Neha Mehta
10 years ago

Both my FDs were supposed to mature in August and September last year, but the company has defaulted on payments of both these FDs.

Neha Mehta
Neha Mehta
10 years ago

I have already made complaints with the CLB in April. But no response as yet.

Neha Mehta
Neha Mehta
10 years ago

I have really suffered because of Plethico pharmacueticals. i have two fixed deposits with this company both of which matured last year. Since then I have been making repeated calls to the company at its mumbai’s corporate office, but no response. everytime i call the company, i get this response, wait for another two months, you will get back your money. But now its been one year. I want to get my money back. please help me. I am really angry with bajaj capital and its agent who has got me trapped with plethico pharmacueticals.

moonshekar
moonshekar
10 years ago

I have a fixed deposit with Ansal properties & infrastructure ltd.

I have not received any interest for this financial year.

There is no notification on the reason for non payment and no proper contact to follow up with.

Please be careful when investing with Ansal properties & infrastructure ltd

I have invested rs. 25,000 in Public category under non-cumulative scheme
I have invested rs. 25,000 in Public category under non-cumulative scheme
10 years ago

I have invested rs. 25,000 in Fixed deposit in Public category under non-cumulative scheme in Plethico pharma. The amount matured in Aug, 2013 but I have not received the money back. Kindly help, how can I proceed in this regard.

The Stud
The Stud
10 years ago

I have also had very bad experience with company FDs (not all). Non performing ones are Birla Shloka, Zenith Birla, Nessa Liesure. I was new to this form of investment and regretting already. However, what has surprised me is lack of support or incompetence of law enforcement. I have talked to many folks and it appears nothing happens. These companies simply walk away with the loot. I think it is a well planned scheme in which many agencies are co-operating to trick investors. RBI should simply ban company FDs.

Supriya
Supriya
10 years ago

Hello,
Are FDs in KTDFC (Kerala Transport Development and Finance Corp), a Govt of Kerala undertaking, safe compared to any other company deposits ? The website says, the deposits are guaranteed by Govt of Kerala upto Rs. 1500 Crores. Is it safe to park Rs. 3Lacs for 1 Yr? They are offering 10.25% for 1 Yr. Thanks.