Most of us would seem unhappy with the ‘equity market’. Because, all of us want to double our money quickly.  But, think hard, equity investment is not a shortcut for multiplying your money. But, do you sit back and think about some other safe ways to be in the market to get returns beyond any conventional bank fixed deposit which gives only to the tune of 9.25%.pa.Yes, companies fixed deposits schemes offer 12.5% annual interest over three years would seem like an attractive offer that must be grabbed. But, don’t go overboard, it will seem all the more lucrative when you see your equity portfolio shirking and gold and silver not rising any more.

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%.

 Here are some considerations what you should keep in mind while riding over these schemes.Creditworthiness of Companies

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.

Frequency of Compounding
Next, check effective rate of interest; how the interest is being get compounded. Whether, it is being compounded annually, semi-annually or quarterly. Higher frequency of compounding gives higher effective yield. Almost all companies offer two options of FDs – cumulative and non-cumulative deposits. In cumulative deposits, your accrual interest gets re-invested with your principal amount and pays back you your principal and accumulated interest altogether at maturity. While choosing option, it is always better to opt in non-cumulative fixed deposit with higher frequency of compounding, so that you can get at least some money which keeps coming back to you before maturity. This will enable you to judge the payback capacity and philosophy of the company, on which you can base your future investment decisions.Go for Short Periods with ‘Minimum’ Amount

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.

Another indication of how a company would treat you as an investor likely treats its shareholders. If it treats its shareholders badly, it is bound to treat its depositors even worse. You must stay away from those companies which are not shareholder-friendly.
One good way also to know the track record of a company is to search for investor complaints on the Internet. Handling  and  processing of  financial documents like Cheques, Fixed deposit  certificates , renewal certificates, TDS certificates, to gauge the kind of efficiency and intentions of the accounts department of the company would give you look at company deposits as a way to increase your income from fixed  deposits.
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Suresh Kumar Narula

SEBI Investment Advisor, Founder & Principal Financial Planner at Prudent Financial Planners
Suresh K Narula is founder and Principal Financial Planner at Prudent Financial Planners. He has earned the professional CERITIFIED FINANCIAL PLANNER and got registered with SEBI as Investment Advisor. He writes on personal and financial planning articles and got published in Dainik Bhaskar, Business Bhaskar and The Financial Planner's Guild, India. He is also a member of Financial Planner's Guild India ( An association of practicing SEBI registered Investment advisers) to create awareness about Financial Planning in general public, promote professional excellence and ensure high quality practice standards. Suresh received his an M.com from Himachal Pardesh University and an MFC from Punjab University, Chandigarh. He can be reached at info@prudentfp.in
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