Best Company Fixed Deposits 2019-20 | Should you Invest?

A very high percentage of Indian household savings are being invested in Bank Deposits. For most of the investors safety of capital and guaranteed investment returns are the top most priorities.

In recent years, investors have started taking a hard look at Best Company Fixed Deposits too. The Company FDs are similar to Bank FDs. The interest rates offered on Bank time deposits have been moving southwards and this is making many retail investors to look out for better alternatives to Bank deposits.

So, what are these Corporate Deposits? – The deposits placed by investors with companies for a fixed term carrying a prescribed rate of interest is called Company Fixed Deposit. Financial institutions, Housing Finance companies and Non-Banking Finance Companies (NBFCs) accept such deposits.

You might have seen the Company Fixed Deposit Schemes advertisements on websites/newspapers. Some of the popular Corporate FDs are – Bajaj Finance, Shriram Transport Finance Unnati Scheme, Mahindra & Mahindra Finance FD, LIC Housing Finance FD, ICICI Home Finance FD etc.,

I have a demat account with ICICI Direct and almost on a monthly basis I get a promotional email from them on one or the other Company Fixed Deposit Scheme. (Companies generally provide a very high commission to brokers in order to push their Fixed Deposits.)

Why are the retail investors looking to invest in corporate FDs?

The RBI has cut its benchmark policy rates thrice during this calendar year (2019-20). The interest rates offered on the Bank Deposits and Post office Small saving Schemes have been softened in the recent past.

So, the answer is – the company Fixed Deposit schemes offer higher interest rates when compared to Bank Fixed Deposits.

But, should rate of interest be the only criteria to be looked at? Which are the best company fixed deposits 2019? Should you invest in Corporate FD Schemes? Are other fixed income options better than Company FDs?

Best Company Fixed Deposits 2019-20

Some of the popular and top Company Fixed Deposit schemes that are currently open for investment are as below ;

Bajaj Finance Company FD Scheme :

• Bajaj Finserv Limited is the holding company for the businesses dealing with financial services of the Bajaj Group.
• Its subsidiary Bajaj Finance Limited is a Non-Banking Finance Company engaged in consumer finance, SME finance and commercial lending.
• The Bajaj Finance FD interest rates given in the above table are w.e.f. 8th May, 2019.
• An additional rate of interest of 0.35% is applicable for Senior citizen investors.
• A special scheme for 15 month tenure is also available. For 15 Months ‘Special Scheme’ the minimum deposit amount is Rs 100,000.
• NRIs can also invest in this FD scheme.

HDFC Ltd Fixed Deposit Scheme :

• This FD Scheme is offered by the housing finance major HDFC Ltd.
• Its corporate FD Scheme has been awarded “AAA” rating for its deposits from both CRISIL and ICRA for over a decade representing highest safety as regards timely payment of principal and interest.
• The HDFC FD interest rates given in the above table are w.e.f. June 14th, 2019.
• An additional rate of interest of 0.25% is applicable for Senior citizen investors.

ICICI Home Finance FD Deposit Scheme :

• ICICI Home Finance Company Limited is one of the leaders in the Indian mortgage finance and realty space.
• Sr. Citizen will get 0.25% p.a. additional interest across all FD tenures.
• NRIs can also invest in this FD scheme.
• The ICICI Home Finance FD interest rates given in the above table are w.e.f. June 18th, 2019.

LIC Housing Finance Public Deposit Scheme :

• Interest rates are effective from 15/04/2019 on deposits below Rs 20 cr.
• Senior Citizen will get 0.25% p.a. additional interest across all FD tenures.
• The minimum deposit amount under non-cumulative monthly option is Rs 2 lakh.

Mahindra Finance FD Scheme :

• MMFSL is a subsidiary of Mahindra and Mahindra Ltd (M&M). The company is one of India’s leading non-bank finance companies focused on the rural and semi-urban sector.
• Senior Citizen will get 0.25% p.a. additional interest across all FD tenures.
• The M&M Finance FD interest rates given in the above table are w.e.f. Oct 24th, 2018.

Shriram Transport Finance FD Scheme :

• Shriram Transport Finance Co. Ltd. (STFC) was incorporated in the year 1979 and is registered as a Deposit taking NBFC with Reserve Bank of India. It is among the leading organized finance provider for the commercial vehicle industry.
• The Shriram Transport Finance FD interest rates given in the above table are w.e.f. Nov 1st, 2018.
• Senior Citizen will get 0.25% p.a. additional interest across all FD tenures.

Are Company Fixed Deposits safe?

The interest rates of some of these Company FDs look decent. But, are these Public Deposit Schemes totally safe? Are they 100% risk-free?

In India, Fixed Deposits or any kind of Schemes where an investor gets fixed rate of interest become an instant hit. Small time investors get attracted to high interest rates offered by the Companies and invest their hard-earned money in Deposits Schemes (Collective Investment Schemes).

But, almost all of the Corporate FD schemes are unsecured investments i.e., if the company defaults, the investor cannot sell the documents to recover his capital, thus making them a risky investment option. In case of bank deposits, upto Rs 1 Lakh is guaranteed by RBI’s Deposit Insurance & Credit Guarantee Corporation (DICGC).

The ‘default risk’ is the main issue here. There are many incidents where top companies were unable to honor the interest/maturity payments.

Investors of Fixed Deposit Schemes offered by Agrigold, Birla power Solutions, Kirloskar Investments and Finance, Micro Technologies, Plethico Pharma, Omnitech Info etc., are still fighting for their monies.

DHFL FD scheme is also used to be very popular. Now, it is in deep-neck trouble and is struggling to service its Debt obligations.

In the past, there were many incidents where Corporates had collected hundreds of crores without any prior approval or authorization from the Regulators.

Some of the entities are genuine and whereas some entities collect monies from the public without getting the necessary approvals from the Regulators. So, it is prudent to first check whether a company that you are intending to invest your hard-earned money has got necessary approvals or not.

Kindly go through this article : ‘How to check if a Company can collect Deposits from the Public? (Company FD Schemes)‘

You may also keep the below points in mind before investing in a Company Deposit Scheme;

• The credit ratings may be good while applying for the scheme but do note that these ratings are dynamic.
• The interest income on company fixed deposits is a taxable income. Also, there is no tax benefit on Company FD investments u/s 80c.
• As we all know, the ‘Rate of interest’ is the main selling point of these schemes. So, I have observed that these schemes generally highlight the Effective Annualized Yields. Let’s understand the difference between nominal interest rate and effective yield.

• Example: Let’s assume that above are the interest rates offered by a FD scheme (Cumulative). They display Effective yields on deposits. If you observe the effective yield rates are higher than the interest rates. Lets us understand this concept.
  • As per this scheme, a Deposit of Rs 10k becomes Rs 15,742 after 60 months (5 years). It’s s a gain of Rs 5,742 (Rs 15,752 -Rs 10,000). One year gain is Rs 1148 (5742/5). In percentage term it is 11.48%, which is shown as EFFECTIVE YIELD.
• Always compare two Company FD schemes in terms of nominal interest rates. Do not go by effective yields. Also, these yields are not tax adjusted.
• Most of the company Fixed Deposits Schemes have lock-in period (like 3-6 months). Also, they levy penalty charges for premature withdrawals. Do look at this clause before choosing the schemes. These details are provided in the Scheme’s application form.
• In case, you have already invested in a Company FD then it would be wise to check company’s performance and movement of its share prices once in a while. This is for a review.

Should you invest in Company FD Schemes? – My Opinion

Generally, longer the duration of investment, higher the rate of interest offered on Company FDs. The biggest risk on Corporate FDs is DEFAULT RISK. The company offering FDs may not service the interest/maturity payments. So, do not consider investing for longer duration like say 10 years or so.

Do not invest in a company FD scheme which offers unusually high rates of interest. Avoid FD schemes offered by companies which you are not aware of. Do not invest in FD schemes which do not have credit ratings. Also, not advisable to invest your entire investible surplus in one FD Scheme. Never ever do that!

Given the current cash and liquidity crunch with NBFC and HFC companies, it is highly advisable to stay cautious with your investments in the schemes offered by these companies.

I personally believe that one can seriously look at other fixed income options like PPF, Sukanya Samriddhi Scheme, Post office MIS, Senior Citizen Scheme, 7.75% GoI Bonds, Secured Non-Convertible Debentures or Debt Mutual funds before opting for corporate deposits. The MF schemes are managed by professionals and they will do the required research on behalf of you. Some of the (dedicated) debt mutual fund schemes do invest in Company Fixed Deposit Schemes also.

Have you invested in any of the company fixed deposit schemes? Did you face any interest or maturity amount payment issues? Are you planning to invest in a FD scheme? Do share your views and comments?

Continue reading :

• List of all Popular Investment Options in India – Features & Snapshot
• Lump sum Investment options to get regular Income for Retirees / Senior Citizens
• Why you should not invest in Fixed Deposits & Recurring Deposits for long-term

(Post first published on : 25-July-2019)