Prajna Capital - An Investment Guide

Fixed deposits (FDs) of companies that earn a fixed rate of return over a period of time are called Company Fixed Deposits. Financial institutions and Non-Banking Finance Companies (NBFCs) also accept such deposits. Tenure: The tenure can vary from a minimum period of 15 days to five years and above, but short tenured FDs continue to be the best bet. Even if a 3-year-long FD looks lucrative, it’s advisable to pick a short-tenured one. In a falling interest rate regime (like the current one), it is advisable to invest in longer tenure FDs with higher interest rate. Security: These deposits are unsecured, i.e., if the company defaults, the investor cannot sell the documents to recover his capital, thus making them a risky investment option. Therefore, always pay heed to the rating before putting money into any such FD. Category of investor: Senior citizens, shareholders and employees are generally entitled to a higher rate of return (say, 0.5%) than other general category retail inves...

After CRB Capital, one of the biggest Non-Banking Finance Companies ( NBFCs ) collapsed in 1996, RBI came out with a long list of dos and don’ts that forced hundreds of NBFCs to shut shop. Those were the days when long queues of depositors outside bankrupt NBFC offices were a familiar sight. It raised a hue and cry, made headlines and often forced the local MP (who could also have been a member of the Parliamentary standing committee on finance) to call up RBI and ask, “What’s this all about?” It was a social issue, political embarrassment and a pain for the regulator who, after a point, felt enough was enough. Rules of the game were changed: NBFCs were asked to chip in with more capital, while raising deposits from the public — up until then the main source of NBFC finance — became almost impossible and within a few months, a large number of NBFCs surrendered their licences. The few that survived were big enough to take care of themselves. Everyone thought NBFCs were history. No...