When you make an investment in the form of a deposit with a company, it is known as a Company Fixed Deposit (CFD). It is a simple and convenient investment that gives fixed returns.
The main advantage of a CFD is that one is assured of a certain rate of return on the deposit just like a bank fixed deposit.
The end use of the funds is also known, i.e. if one invests in a manufacturing company, it is clear that the deposit is being utilised towards manufacture of the product in which the company is engaged. The returns on company fixed deposits are higher than bank fixed deposits and if combined with a high credit rating, which the company might have, would mean that the money is in relatively safe hands.
Some of the other factors relating to the CFDs should also be known. These deposits are unsecured. One should always refer to the credit rating of the CFD which is obtained from credit rating agencies.
These deposits offer relatively low liquidity and the interest is also taxable.

Types of CFDs
Company fixed deposits are categorised according to the frequency with which the interest is received by the depositor. These are non-cumulative and cumulative. Under the cumulative option one receives interest regularly with monthly , quarterly and half-yearly and yearly frequencies. Under the cumulative deposit the principal amount along with accumulated interest are paidon maturity. Since interest is added to the principal on a compounding basis, the return is higher than in the non-cumulative option. Interest is compounded at different frequencies (monthly, quarterly, half-yearly or yearly). The shorter the frequency of compounding, higher return on maturity.

The Issuers
The issuers are mainly manufacturing companies and non-banking finance companies (NBFCs). We shall discuss the CFDs of Manufacturing Companies first. These deposits are available for investments as and when the company requires funds. They are available for durations between 6 months to 3 years. The rate of interest is not more than of 12.50% and is subject to prevailing interest rates in the country. Credit rating is not mandatory for deposits of manufacturing companies.
NBFCs lend money in different forms and earn a profit from the difference - in the interest paid on borrowing and that earned on lending.. In most cases, the tenure ranges from 1 year to 5 years.
A credit rating is compulsory for deposits of NBFCS. AAA rated instruments have the highest safety.
Like manufacturing company the interest rates cannot exceed 12.50%. Higher the rating, lower the interest rate.

Selecting a company fixed deposit
First and foremost, check the company’s credit rating. Agencies like CRISIL, CARE and ICRA assign ratings to companies (very low risk, low risk, medium risk and high risk) depending on their performance and ability to make timely payments to investors.
The RBI has made it mandatory for companies to have a minimum ‘A’ grade rating before they can accept deposits, so invest in companies with at least ‘AA’ rated schemes, which are safest. Regularly monitor the ratings to know how or safe the company is. Always seek advice of an experienced investment advisor who has expertise and knowledge of the market, and who can advise you on when, where and with whom to invest. Look for companies with a good service record in order to receive your money promptly.
Don't put all your eggs in one basket. Divide your investment in deposits of different companies so that, if something goes wrong with a company or with the sector in which it operates, you won't lose everything.
Focus on companies with a solid reputation and high credibility. Avoid long term deposits to keep yourself open to better investment prospects that emerge.
Preferably go in for automatic renewal of your deposits. Always insist on the company refunding your amount before renewing the deposits.

How to invest in company fixed deposits
Once the company to invest in has been decided the next step is to apply in the latest application form. It includes details about the company and scheme terms, including its credit rating. Fill your form and attach cheque or draft. You can also take help of your friendly investment advisor. The actual KI Deposit Receipt (FDR) takes a few days to arrive. Once the FDR arrives, check that all the details are correct. If any post dated cheques are due, make sure they are sent along with the receipt. Remember your post-dated cheques on their due dates.
If you happen to lose your receipts or the interest warrants, notify the company immediately. An indemnity form is required to be filled before issue of duplicate FDR and cheques.. File the acknowledgements from the company carefully.

Guidelines for companies to safeguard investors
Regulations for both types of companies, manufacturing and finance companies put limit on
the amount of deposit, which could be mobilised by them.
A company proposing to invite deposits has to first advertise about itself and its financial position.
The company has to keep liquid assets in a specified form, equaling a percentage of these deposits. All companies offering fixed deposits have to submit reports in a specific format about their deposit garnering activities from time to time.
In case of default in the repayment of deposit the complaint has to be filed with Company Law Board, under whose jurisdiction the registered office of the company is located.