Skip to main content

Corporate Fixed Deposits

With interest rates beginning to inch upwards, companies are entering the deposit market to raise funds aggressively. The interest rates on offer are quite impressive as well.
Currently, Tata Motors is offering 8.75 per cent for three-year deposits and 8 per cent for two years. Jindal Steel and Power is giving 8 per cent for one year, 8.25 per cent for two years and 8.50 per cent for three years.

There are some who are offering much higher rates. United Spirits is offering 11 per cent for one-year deposits and 11.50 per cent for two years. Network18, whose issue closed recently, was paying up to 12 per cent for one, two and three years.

According to a company executive, deposit schemes are being launched to take advantage of low rates offered by bank fixed deposits. And, though banks deposit rates have started moving up, industry experts say it will take sometime before banks offer over 8 per cent return.
Interest rates on offer by banks are visibly lower. And, while some of them have revised rates recently such as HDFC Bank, IDBI Bank, Union Bank of India and Jammu & Kashmir Bank, they are still quite low.

For instance, HDFC Bank is offering 5.75 per cent on one-year deposits, 6.50 per cent for one to two-year deposits and 7 per cent for two to three years.

IDBI Bank is giving 6 per cent on 6 months to less than one year, 6.75 per cent for 1 year to less than 500 days, 7 per cent for 500 days and 7.25 per cent for two to three years.

Many investors are getting lured by corporate deposits because of high posttax returns. However, investors should remember these instruments carry an element of risk as well. Investors need to be compensated for the risk they are taking with these deposits. Being more risky than bank deposits, corporate deposits offer higher rates than banks.

Corporate deposits are unsecured loans because if the company defaults, there isn’t much recourse for the investor. Some of the alternative investment option in the current market could be non-convertible debentures (NCDs) and bank deposits.

NCDs have a reservation for different category of investors, and they allot units on first-come-first-serve basis. Therefore, retail investors get restricted on the amount that can be deposited. But, one should not get too swayed by the numbers and keep only a portion of their portfolio in corporate deposits. Corporate deposits can form 5 to 10 per cent of aportfolio. And, those with big amounts to invest, could diversify among different companies.

Experts said there was a rush from companies to raise cash now, because in the next two quarters, it was expected interest rates would start climbing. Raising money now will help them see through ahigh interest rate regime.

Investors need to be compensated for the risk they are taking with these deposits. Being more risky than bank deposits, corporate deposits offer higher rates than banks

Popular posts from this blog

Debt Mutual Fund Dividends are Taxable

DDT is deducted when a non-equity fund declares dividends. Equity and balanced fund dividends are tax-free The AMC is correct to deduct the dividend distribution tax (DDT) as it is mandated by tax laws. DDT in mutual funds is deducted every time a non-equity fund declares dividends. Equity fund and balanced fund dividends are tax-free . It is possible that you have invested in a non-equity fund for the first time or have received the dividend under a non-equity fund for the first time. That is why this is the first occasion when you have come across DDT.   The rate at which non-equity schemes deduct DDT has also gone up after the July 2014 budget. This is due to a change in calculation methodology. Earlier, if the fund has to declare a dividend of R 100, it used to make a provision for R 128.3, paying R 28.3 to the taxman and distributing the balance to the investor. This allowed the investor to bear less tax since the effective tax rate was 22.07 per ce...

Franklin India High Growth Companies Fund

Franklin India High Growth Companies Fund Online One of the key developments that the Street is keenly waiting for is a cut in interest rates by Reserve Bank of India . With demand rising gradually, a rate cut is expected to boost earnings growth for companies. In such a situation, schemes which invest in high growth companies are best suited, especially when seen from a long-term perspective. One such scheme is Franklin India High Growth Companies Fund. Fund managers Anand Radhakrishnan, Roshi Jain and Srikesh Nair strictly follow valuation parameters when it comes to choosing stocks.Valuation parameters, such as enterprise value, price-to-earnings growth ratio, forward price-to-sales ratio and discounted earnings per share, play a critical role in selecting companies for investments. Taking into account these parameters, the fund managers invest in companies which are poised for high growth in their respective sectors. This approach has been in favour of the scheme and it has perform...

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...

Avoid NFOs

  Don't get taken in by the flurry of new fund offers. You will be better off sticking to the tried and tested schemes.   For the past one year, to cash in on the bull run in equities, mutual fund houses have gone on a new fund offer (NFO) overdrive. But experts are unanimous in their advice: avoid NFOs . While past performance is not an indicator of how a fund will fare in the future, it does tell the investor how skilful the fund manager is. This crucial information is missing in an NFO. Not only is there no track record to judge an NFO by, many NFOs are similar to funds that already exist. If the new fund is similar to existing funds, you are better off investing in the latter. Around 67% of the new launches in 2014 were closed-end products. Investing in the NFO of a closed-end fund is doubly risky. In case the fund's performance is lacklustre, a closed-end fund does not allow you to exit. Even though closed-end funds are listed on the stock...

Mutual Fund Exit Load Changes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...
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