Five Reasons Why You Should Invest in Company Fixed Deposits
Written on Tuesday, August 18, 2015
By Team Bajaj Capital
Deposits in companies that earn a fixed rate of return over a period of time are called Company Fixed Deposits. Company FDs have become a popular choice only due to the fact that they provide higher returns when compared to the FD schemes being offered by private and public sector banks.
Here is the list of top five reasons for you to consider investment in Company Fixed Deposits:
1. Risk Management
If you have invested in companies with AAA rating, it means that it is a safe and secure investment. Always check for the rating provided by agencies like CRISIL and ICRA. If the company is rated low, you can choose not to opt for them.
2. Higher Returns
Company FDs offer higher returns in comparison to traditional bank fixed deposit schemes. Here, the interest rate is 2-4 percent higher than what is offered by bank.
3. Interest Paid at Short Intervals- Regular Income
There are schemes with an option to pay interest at monthly or quarterly intervals, and investors find it quite attractive to supplement their regular income. But, benefits from FDs with cumulative interest are slightly higher as the interest paid is worked back into the deposit account and the deposit holder enjoys benefits of compounding.
4. Limited Lock-in Period
Most of the schemes have a lock-in period of 6 months. If investor wishes to withdraw fund after the minimum lock-in period, but before the date of maturity, the interest payable will be 1 percent lower than the interest applicable for the investment period.
5. Tax Benefits
No TDS is deducted if your interest income falls under the bracket of 5,000 for a year.
Company FDs are mixed bag like most of the investment products. We have always suggested investors to diversify their portfolio and we would again insist the same for FD schemes. You should avoid investing surplus funds in one single company FD scheme. Diversify the same by splitting the amount in 4 to 5 companies. 10 percent of your total fund is the maximum exposure you should allot to a single FD company.
#Investors are advised to read the scheme document before investing in any company fixed deposit to understand the terms and conditions relating to the premature withdrawal of deposit and other clauses.