Selecting a Company Fixed Deposit in India

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A higher rate of interest usually comes with a higher level of risk as companies that are not financially sound or have a low credit rating are usually the ones that offer a higher rate of interest to attract customers.

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Selecting a Company Fixed Deposit in India:

Selecting a Company Fixed Deposit in India What are the top 10 ways to decide upon the best company fixed deposit for your savings? Following are the key aspects you should consider

Security:

Security The risk involved in investing your funds into a particular company fixed deposit is the most important parameter that should be considered while choosing a company fixed deposit scheme. Investing your savings in a company that ensures regular dividend payments to its investors is a safe bet regardless of lower interest rates applied on these fixed deposit schemes. Companies accepting fixed deposits from the public or its members should acceptable ratings. Some types of companies are expected to have a minimum rating of ‘A’ to float FD schemes. ICRA is a credit-rating agency which reviews companies FD offerings and their overall business performance and issues ratings accordingly. ‘AAA’ rated companies or schemes are among the safest to opt for.

High Interest Rate:

High Interest Rate The key reason for any investor to opt for a fixed deposit account is primarily to earn interest on the sum invested. A higher rate of interest usually comes with a higher level of risk as companies that are not financially sound or have a low credit rating are usually the ones that offer a higher rate of interest to attract customers. In general, company FDs currently offer between 9% - 15% as interest. Investors must be on the lookout for companies that claim to offer over 15% rate of interest on their fixed deposit schemes. These companies are usually risky investment options .

Interest payments:

Interest payments Interest payment is another important point to take into consideration while choosing a company to open a fixed deposit account with. Companies have different frequencies of interest payments viz. monthly, half yearly, quarterly, yearly or cumulative.

Higher return on investment:

Higher return on investment In order to earn a higher return on investment consider the key variables that affect profitability i.e. interest payment options, tenures, etc. For a depositor to ensure higher return on investments, close attention needs to be paid to the terms and conditions levied on the fixed deposit accounts and comparing them with other available options. Some companies may offer higher rates but for shorter tenures. In this case a company offering marginally lower rates for longer tenures with the option to compound interest earned will provide a better effective rate thereby earning depositors higher returns.

Credit rating:

Credit rating The credit rating of a company is most important for the security of the depositor’s vested assets. Rating agencies in India, such as, CRISIL, ICRA, CARE, etc. provide investors with comprehensive details that they require to make an educated choice regarding the company that are investing their assets with. Depositors must steer clear of rating that are below investment grade (A ).

Company quality:

Company quality The profile as well as pedigree of a company are vital pieces of information that investors should be mindful about. A background check of the company and the promoter’s history are important points to look out for before making a final decision on investing in a company fixed asset. Instable management and too many ups and downs in a company’s financial performance will indicate high risk.

Liquidity:

Liquidity Investors must be clear about the level of liquidity that they are expecting out of a company fixed deposit account. Some companies offer short term deposits and some offer a six month lock-in period. These kind of schemes are suitable for investors looking to maintain maximum liquidity on their vested assets. Short-term schemes are very useful for those who are looking to park surplus funds temporarily but profitably before channelling them into another investment avenue.

Tenure:

Tenure Long-tenure fixed deposit accounts lead to higher risk on investment on one hand, but on the other hand, long tenures offer higher rates of interest, therefore, higher returns on investments. Higher risk usually earns more rate of interest and vice-versa. The choice lies with the accountholder who should invest according to personal liquidity requirements and personal risk appetites.

Features offered:

Features offered Certain company fixed deposit accounts offer investors overdraft facilities against funds held in their fixed deposit accounts. Some company fixed deposit schemes offer reinvestment schemes that offer increased return on investment without investing any additional money. Here, interest earned is reinvested instead of being paid out. It is added to the principal investment and interest is then calculated on the enhanced amount .

Diversification:

Diversification Company fixed deposits allow depositors to diversify their investments. Investors can choose to deposit into various different company fixed deposit schemes in a way that interest from any one company does not exceed Rs.5000 at a given time.

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