How To Be Smart When Investing In a High Interest Company FD
Today, there is a rising demand for company FD (Fixed deposits) , which can be attributed to reasons like the promise of high returns and the need to refrain from uncertain equity investments. Company fixed deposit schemes pay around 50-150 basis points more than the fixed deposits that banks offer. These deposits are perfect if you are looking to invest over a tenor of 1-3 years.
The Sign Posts for Smart Investment
You must be extremely cautious about company fixed deposits, and not be lured in by false promises. Make informed decisions and be alert. Company FDs are different from a bank deposit, which offer security up to Rs1 lakh, based on the investment amount. However, as you know, where there is risk, there is reward.
Here are some sign posts to help you on your roadmap to invest smart:
- Review Company Ratings: Company fixed deposits have a higher risk as compared to bank fixed deposits, but they provide better returns with higher interest. Thus, considering the risks, it is important to thoroughly review and understand the ratings of the company you are investing in. CRISIL or ICRA are expert agencies that offer ratings of credibility to various companies. This can help you ensure safety for your investment option. If a company has an AAA rating, it signifies a safe, secure, and minimum risk investment. If it has lower ratings, there is potential for higher risk. Bajaj Finance for example has an FAAA rating by CRISIL, and an MAAA rating by ICRA to offer optimal levels of safety.
- Follow up Regularly: Checking company ratings is not a one-time job, as ratings may change from time to time. Therefore, even after investing in a company fixed deposit, you will have to check the ratings regularly. It is also important to review other information like financial statements, overall performance and decision making capacity. In fact, the RBI has made it compulsory for a company to have at least an A rating to be able to accept public deposits.
- Chose Registered Against Unregistered Companies:Experts wholeheartedly discourage investing in an unregistered company as the risk associated with such FDs may be higher than you are willing to bear. Registered companies under the Companies Act, 1956 include manufacturing companies, NBFCs (non-banking finance companies), hosing companies, government companies, and other financial institutions. Make sure your company FD is that of a registered company.
- Diversify your Investments: Investors should refrain from putting their money in a single company fixed deposit scheme and try to diversify their investment into four or five different companies. This helps ensure that you still have a backup in the event of losing money in one investment.
- Avoid Investments in Failing Companies: If the company is undergoing a financial crisis, then it may fail to make due payments. Thus it is important for prospective investors to note. According to section 58-A of the Companies Act of 1956, if a company is shutting down its operations, equity shareholders are entitled to first preference of repayment, and not fixed deposit holders. Be aware of this and make sure you are investing in a company FD in a company that is doing well.
Better Be Safe Than Sorry
Make a note of all the points listed thoroughly to ensure you make the safest and smartest investment decision. FDs are usually considered one of the more reliable sources of investment and are bound to be a part of your entire investment portfolio. Just taking a little care will go a long way in securing your hard-earned money. While considering company deposits, do look towards trusted NBFC like Bajaj Finance. With one of the highest rate of returns on FDs and high security ratings, this may be the company FDs that may benefit you. To find out more about the fixed deposit schemes offered by Bajaj Finance .