Skip to main content

Company FDs With High Rates May not be Your Best Investment Option

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 


Several companies such as Jaiprakash Associates, Allied Digital Services, Plethico Pharmaceuticals are offering 12-12.5% interest per annum for three year fixed deposits, a good 3.25-3.75% more than what is offered by banks like State Bank of India (SBI) or ICICI Bank. Despite the higher rates, many financial advisors are asking investors to be extremely selective and choosy while investing in company fixed deposits, as there have been many instances where companies have just not repaid the money or delayed payments. For example, Ankur Drugs, Asian Electronics and Birla Power have delayed repayments in the recent past. Ankur Drugs' capacity expansion plans got delayed due to funding issues, while labour problems crippled production at one of Birla Power's manufacturing facilities.


Since company fixed deposits are unsecured instruments, investors should be extremely careful before investing in them. As a benchmark, any company paying 2%, or 200 basis points, more than a bank deposit should be scrutinised thoroughly and risk-averse investors could simply skip them When choosing company deposits, invest in listed companies only as the financial information is available in the public domain. Check the industry in which it operates, promoters' track record, look out for pledged shares, and go for profitmaking companies with a track record of at least three years.


Why Do Cos Pay High Rates?


Many companies, especially the smaller ones, pay higher rates on their deposits to compensate investors for the higher risk taken. That is why you would see that a highly reputed or 'AAA'-rated company would pay relatively lower rates on its deposits than a lower-rated company. For example, reputed banks like SBI, ICICI Bank and HDFC Bank pay 8.75% for a three-year deposit.


Similarly, in the company fixed deposit space LIC Housing, an 'AAA'-rated company, pays 9.25% on its three-year deposit; Mahindra Finance, with an 'AAA' rating, pays 10% on its deposit of similar tenure. As compared to this, Allied Digital Services or Unitech pays 12.5%, while Plethico Pharmaceuticals pays 12% on three-year deposits.

 

Manufacturing companies do not need a rating, while NBFCs mandatorily need to get their fixed deposits rated. However, there are exceptions to this rule. There have been instances where even reputed companies pay higher interest rates, especially if they are in a hurry to fund an expansion project or finance a takeover. Very often companies pay high rates temporarily as they would want to complete projects which are stuck in between. However, investors ought to know the reason. For example, in 2008, even Tata Motors paid 11% for three-year fixed deposits to fund its JLR acquisition. That means investors should ask distributors and financial advisors for the reason for such high interest rates. If the reason is genuine and they are convinced with the financials of the company, then they should invest. For those who are risk-averse, simply skip these companies.


CHECK RATINGS AND FINANCIALS


Financial planners advise investors to stick to listed companies, as their quarterly results, annual reports and research reports are easily available in the public domain. In the case of NBFCs, go for companies which have 'AAA' or 'AA' rating only. He advises investors to invest in companies like HDFC, Mahindra Finance, LIC Housing, all of which carry 'AAA'-rating. All these companies have reputed promoters and are profit making and paying dividend for the past three years. As a rule, investors should avoid smaller or obscure companies with erratic financial performance. Investing in such companies just for higher interest could be very risky. In the recent past, companies like Ankur Drugs, Asian Electronics have delayed repayments to depositors. Both these companies have reported a loss for the financial years ending March 2011 and March 2012. Though deposit holders are fighting hard, getting the money back could be a long-drawn process. If you are a retired individual living on interest income, you could be badly hit. Given that the economy is going through a slowdown, investors should not be greedy. Avoid putting money in companies merely for an extra 1-2% higher interest.


CHECK FOR PLEDGED SHARES


Investors should also check for pledged shares data, which is available on the stock exchange website and disclosed every quarter. Avoid companies which have a very high percentage of the promoters holding pledged. Since stock prices are subject to price fluctuations, whenever a stock's price falls, the lender may ask for more margin money or stocks. If the promoter cannot pay cash or give additional shares as margin, the lender may ruthlessly sell the pledged shares to recover his losses. In such cases, the financial stability of a company as well as its business could suffer. For example, Unitech has 76% of promoter holding pledged as of December 2012, while Jyothi Structures has 67% of its promoters holding pledged.


Re Up 25 ps Against $


MUMBAI The rupee on Monday gained a hefty 25 paise to close at 54.56 against the dollar on sustained selling of the US currency by exporters amid weak global cues. However, consolidation in local equities and continued capital outflows capped the domestic currency's gains to some extent, forex dealers said. The rupee commenced a tad higher at 54.80 from its previous closing of 54.81 on Friday at the Interbank Foreign Exchange (Forex) market. It moved in a range of 54.54-54.84 before closing at 54.56, a rise of 25 paise, or 0.46 per cent. Rupee continued to trade strong for the second day against the dollar taking cues from the euro, which traded strong against the dollar. The dollar index was quoting down by 0.05 per cent against a basket of six major currencies. The yen weakened beyond 99 against the dollar for the first time since May 2009. "The Bank of Japan's plan for aggressive monetary easing was taken negatively by the investors, as a result yen traded weak and made new lows against major currencies.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

ICICI Pru Mutual Fund Dividend

ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...

Hidden Bank Fees

  What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...

Partial withdrawal from PPF

  Public Provident Fund (PPF) account has a lock in period   If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money.   The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17.   There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...

Updating a minor PAN card upon becoming adults

  Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...

Perpetual SIP - Its Advantages

Retail investors have taken a fancy to investing in mutual funds through systematic investment plans (SIPs). As per industry estimates, Rs 4,000 crore flows into SIPs every month. One way to take advantage of SIPs in a true long-term manner is to opt for a perpetual SIP 1. What is a perpetual SIP? In an SIP , you make periodic investments in a mutual fund scheme of your choice generally every month for a pre defined tenure. While signing up an SIP mandate , you have the option to leave the end-date column blank. If the column is blank, it means the investor has opted for a perpetual SIP . Most fund houses assume this SIP will continue till December 2099 unless you give a written communication to stop it. However, some fund houses require you to tick the `perpetual option'. 2. What are the advantages of perpetual SIPs? Registering an SIP involves a lot of paperwork and it takes time. It is observed that many investors skip their SIP instalments when they go for short-tenure option...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now