Is Fixed Deposit with Companies a Better Option than a Bank Fixed Deposit?
Fixed Deposit is one of the most commonly used investment options, as fixed deposits are normally risk-free and the return is assured. Returns on fixed deposits totally depend on the rate of interest that the organization will issue and these returns are calculated on the simple interest methods.
Note that the company fixed deposit can be a better option than investing in the fixed deposit of a bank. Finding the right rate of interest can be as useful as the return is for taxable income. Hence the company fixed deposit is a very popular investment among investors. This is because the rate of interest in the company FD is usually higher than the rate of interest offered by the bank. Senior citizens find these investments best for a stable income as a part of their retirement funds.
The company fixed deposit offer a better rate of interest, especially if your deposit’s lock in period is for a longer tenure. In order to invest in CFDs, the company should be rated as an AAA Company to be assured of the return, and the security of your investment. Companies give an approx. 1–2% extra rate of interest in comparison to the bank’s fixed deposit of a similar tenure. The companies offer a rate of interest of 10.25% p.a. especially in case of elderly citizen having a tenure of above three years, and above 9.50% p.a. for a period of one to two years.
The investors’ rate of interest depends upon the funds available. The best options are to see which tenure fits your investment goals and on the basis of that, the banks will provide you with the rate of interest. Sometimes it is advisable to invest parts of your funds in 1 year, 2 year and 3 year tenure periods because the time of rates is going low, and this will help you benefit in terms of rates and also provides liquidity. But there might be a risk involved in investing in a company’s fixed deposits, so the investors should always check the company’s rating before investing.
Credit ratings are very important for the evaluation of all the companies, including any non-banking financial organizations and manufacturing industries prior to raising deposit from the public. Moreover, the new company’s act has made CFD safer options for investors. It is worth noting that the company whose minimum turnover is INR 100 crore and a minimum of INR 500 crore only are permitted to accept any kind of funds from the public.
You need to do a proper fundamental research of the company’s history and portfolio before investing in any such deposit with the company which help you to get more benefit from FD Investment. Company’s record of profits and various different conditions should also be measured before investing.
As these investments have many uncertainties, the risk involved is usually higher than the bank FD, unless the company is reputed and has a stronger promoter background.
Your total investment funds should be diversified into 2–3 companies’ FD to be safe, in case one of the invested deposits is not doing so well, you can still have the other FDs for stability. Also, it is advisable
to invest 5–10% portion of the total investment funds into each investment medium.
Note that there are no tax benefits on the investments of CFDs HUDCO 5 years deposits — In these, the amount invested is eligible for tax deduction according to Section 80c.
The income earned by the CFD is taxable, as per individual tax slab. And there is a tax deduction of 10% in case the total interest collected exceeds INR 5000 annually.
Thus CFDs remain a viable option for investment. But a critical evaluation of the company is essential before making any investment decisions.
