Well, company FDs are supposed to unsecured and the chances of eroding capital, in the pursuance of slightly higher interest over bank deposits, carried much higher risk. However, you can still lock your money in these schemes, be careful especially with those companies who are offering a rate of interest that is more than 3%.
Since, new ventures companies which could not be able to get money through cheaper routes; possibly, they cannot borrow more from banks or from abroad or cannot issue equity shares, they have chosen to raise money from the public as a last alternative. They are constrained to offer a higher rate in compare to existing companies. So, you need to assess their creditworthiness, type of business and quality of management before you leap. It does not mean that you should stay away from those schemes. Check their credit rating given to fixed deposits. As, Reserve Bank of India has made ‘A’ rating an eligibility criterion for NBFCs, similar regulations do not apply to other industries. You should stay away from unrated deposits and make sure you opt with a rating of ‘A’ and above.
Initially, you should invest in FDs with shorter tenure with ‘minimum’ amount, to begin with; most companies set a minimum threshold limit. However, you should not form more than 5-8% of your total investment. Some companies ask for a minimum amount of Rs25,000 as investment for longer period. For starter, you should avoid such large, long and no-regular returns initial investments. Prefer shorter periods and invest smaller amount, being small amount and its maturity is nearer, more likely that your principal would be secure and any drastic changes in the financial position of a company would not affect your portfolio in large extent.
Financial Fundamentals and Investor Friendly
If you able to study the financials and annual report of the company, look at the schedules and footnotes in tiny fonts to find out what for the company is raising funds, what the industry outlook is and what risks the company face. Check the company’s profitability and is it paying regular taxes on that? This is a very conservative indicator that company may inflate its reported profit but would not inflate taxable profits and paying minimum alternate taxes (MAT), if it is making losses.
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