Bharat Bhushan & Company has a New Issue Division, which offers services from the Primary markets. WE deal in the marketing of Mutual Funds, Fixed Deposits, Bonds and Initial Public Offer (IPOs). We also trade in shares and debentures on DSE and BSE.
For investors who are risk averse, we offer the following products:
Fixed Deposits: We accept fixed deposits for Blue chip Companies like HDFC, HUDCO, IDBI, Ballarpur, Escorts, SRF, etc.
Company Fixed Deposit is the deposit placed by investors with companies for a fixed term carrying a prescribed rate of interest.
On what time basis is the interest payment made?
Interest is paid on monthly/quarterly/half yearly/yearly or on maturity basis and is sent either through cheque or ECS facility.
When is TDS deducted on the interest from Company Fixed Deposits?
TDS is deducted if the interest on fixed deposit exceeds Rs.5000/- in a financial year.
Is there any scope of appreciation of principal?
No, at the end of deposit period principal is returned to the deposit holder.
How to choose a good company deposit scheme?
- Avoid the unrated Company Deposit Schemes.
- Within a given rating grade, choose the company with a better reputation.
- Once you decide on a company, next choose the schemes that have given a better return. Unless you need income regularly, you should prefer cumulative to regular income option since the interest earned automatically gets reinvested at the same coupon rate giving upon better yields. It also gives you a lump-sum amount at one go.
- It is better to make shorter deposit of around 1 year to 3 years. This way you not only can keep a watch on the company’s rating and servicing but can also plan to have your money back in case of emergency.
- Check on the servicing standards of the company. You should not oblige companies that care little about investor services like promptly sending interest warrants or the principal cheque.
- Involve your reputed Financial planner / Investment Advisor like us for advice in all your transactions. Do not bypass and invest directly just to earn an extra incentive.
- For outstation investors, it is recommended to check whether the company accepts outstation cheques and makes payment through at par cheques.
Which companies can accept Deposit?
Companies registered under Companies Act 1956, such as:
- Manufacturing Companies
- Non-Banking Finance Companies
- Housing Finance Companies
- Financial Institutions
- Government Companies
What is the period of the deposits?
Company Fixed Deposits can be accepted by a Manufacturing Company having duration from 6 months to 3 years. Non-Banking Finance Company can accept deposit from 1 year to 5 years period. A Housing Finance Company can accept deposit from 1 year to 7 years.
The advantages of company Deposits from an investor’s point of view are:
1.Higher Interest Rates
Selected finance companies with highest credit rating are offering interest rates iwhich is above what the banks pay for there deposits.
2. Variety of Deposit Schemes
Companies are free to design their own deposit schemes and most companies offer one of the following types:
- Monthly income deposits where interest is paid every month.
- Quarterly income deposits where interest is paid once in a quarter.
- Cumulative deposits where interest is accumulated and paid at the time of maturity.
- Recurring deposits similar to the recurring deposits of banks.
- Cash certificate schemes.
3. No Tax deducted at source
Companies do not deduct tax at source up to an interest income of Rs.5000 per annum. Further, no tax is deducted at source if the depositor submits from 15H(duly filled in) even if the interest payable exceeds Rs.5000 p.a. However, interest on company deposits is fully taxable, unlike interest on bank deposits and some other investments, covered under Section 80L.
4. Other Attractions
Many companies have come up with servant other attractions to lure depositors:
i. Allotment of safe deposit vaults on a preferential basis.
ii. Instant loan scheme.
iii. Premature withdrawal facility.
iv. Entitlement to future issues of equity shares, convertible debentures, etc., on a firm allotment basis.
v. Free trips to company’s plants.
vi. Scholarships to depositor’s children.
Deposits are Unreserved
All Company deposits are unreserved. In other words, these deposits are not backed by any assets, specifically or generally charged.
Risk
There is no deposit insurance scheme with companies to protect as there is in the case of bank deposits up to Rs.1,00,000 per individual your deposit. If a company goes into liquidation the depositors as unsecured creditors of the company, rank only after secured lenders, like financial creditors of the company, institutions and banks.
This risk of default by a company is not a notional risk. There are several well-known companies, which have defaulted in repayment of deposits.
Guidelines for Company Depositors
Notwithstanding the disadvantages discussed above, if you wish to invest the company deposits the following guidelines are suggested for your benefit:
COMPANIES YOU MUSTN’T INVEST IN
New companies which have yet to prove their financial and managerial expertise;
It is best to avoid private limited companies, and partnership firms. Such companies are under no obligation to publish their working results and it is therefore very difficult to judge their performance and ability to meet their obligations.
It is advised not to invest in:
1. Companies which offer interest higher than 15%
2. Companies which are not paying regular dividends to the shareholder
3. Companies whose Balance Sheet shows losses
4. Companies which are below investment grade (A or under) rating
5. Companies whose balance sheets show accumulated losses.
6. Companies with a poor liquidity position;
DO NOT RENEW YOUR DEPOSITS AUTOMATICALLY
Never renew your deposits automatically without first asking for a refund of the matured amounts. A timely refund establishes the credibility of the company in honoring its commitments.
CHECK CRISIL OR ICRA OR CARE RATING
Look for the CRISIL or ICRA or CARE rating. Invest only in highly rated companies
DIVERSIFY YOUR DEPOSITS
Do not put all your money in any one company, no matter how sound it may be.
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