3 Things To Check Before You Invest In A Company Fixed Deposit

  Author: Kundan Kishore

Who doesn’t want high fixed income? But that’s easier said than done. Bank fixed deposits (FD) and Small Savings Schemes are two of the most popular fixed income investments in India. However, both of them go through periods marked by decline in their interest. This is the time when investors who seek high fixed income look around for better paying fixed income options. Often this taken them company fixed deposits or company FDs.

The lure of company FDs Company FDs typically offer higher interest than bank FDs. At the same time, company FDs have higher risk thank bank FDs. Unlike bank FDs which are covered under the Deposit Guarantee Scheme of upto Rs 1 lakh for notified banks, in case of company FDs, there is no such protection. In this backdrop, it is important for any investor to take a good look at the following aspects of company FDs before investing in them.

Look out for the credit rating All corporate fixed deposits come with credit ratings. These credit ratings conducted by institutional rating agencies are based on the financial health and repayment capacity of the company. Never invest in a company FD which has a rating below AAA or AA. Remember, lower the rating, higher the chances of default.

Check out the company’s financial health If the company is listed entity, you need to look closer at the financial performance of the company of last 3-5 years. Ensuring that the company is profit-making with no adverse media reports or reprimands or fines from government agencies should be good enough. Needless to say, you need to avoid investing in the FDs of a loss-making company.

Find out about the company’s reputation Before you invest in the fixed deposit of a company, do due diligence about the reputation of the company. If it is a reputed company, there is a very little chance of repayment default. At the same time, you also need to check whether the company has defaulted on payments to its depositors in the past. Avoid companies with any track record of payment defaults.