Are you looking for some ideas to invest money in fixed deposit funds? Then we are here to give you a beginner guide on which plan and fixed deposit you should buy and what things you should seriously look at while investing money in fixed deposits.
Company Fixed Deposits and Bank Fixed Deposits; sometimes names could be deceiving. It might even lead you to think that company fixed deposits are safe, just like bank fixed deposits.
Company fixed deposits offer higher returns, but you must be aware of the risks involved and other things before investing in this industry.
Difference Between Company FDs and Bank FDs
Risks
The first thing you need to understand about these Company FDs is that they are riskier than bank FDs. This is because banks are more protected from default, and other bank FDs are guaranteed up to Rs. 1 lakh. RBI would not allow a bank to default just like that. It will do everything in its power to protect the depositors’ money.
However, companies do not get such considerations. If they default, RBI will not step in to save it, and no other institutions are likely to help either. Besides, these FDs are not insured, which means that if the company defaults, then you stand to lose all your investments.
Interest Rate
Company Fixed Deposits offer higher interest rates than bank fixed deposits. However, interest rates depend upon the risk involved. If the risk is high, then they would offer you more interest rates to attract your investments. Therefore be wary of companies who offer high interest rates on deposits.
Companies offer high interest rates when they need immediate funds. We can see blue-chip companies offering lower interest rates for their FDs. This is because their fundamentals are strong, and there is only a small probability that it might default.
Tips to Make Safe Investments
If you are interested in investing in company FDs to make some money, keep in mind these checks. These will help you to invest safely without fear of loss of your money.
Rating of the Company:
There are institutions like CRISIL and ICRA that rate companies and the FDs they issue. Before investing in this instrument, it is a must that you know what their ratings are.
If the rating agency has given the company FD a ‘AAA‘ rating, then there is nothing much to worry about, and you can invest in it. However, for companies with ratings lower than that, you must be very cautious when investing.
3% Rule
Usually, be careful of companies who promise you to return above 3% of the bank rate. If the bank rates are 8%, be careful of companies offering you 12% or more on their FDs. Such FDs are usually very risky.
Check Past Performance
Do a little research on the company that you plan to invest in. See if their performance was good or bad in their financial dealings, customer service, prompt in their repayment proceeds, etc.
Besides, make a detailed search on the background of promoters of the company. If they have a shady past, you should keep away from such companies. They might promise you high returns, but by the time you get time to think, they will be off with your money.
Liquidity of Funds Invested
Ensure that you do not require the funds you intend to invest in company FDs in the immediate future. This is because company FDs are very illiquid. It means that you cannot take money for an emergency from FDs easily. High penalties are charged, and it takes about 3 to 5 days for you to get the money.
Diversify
When investing in company fixed deposits, you should invest in more than one company. This is to be on the safe side. If the company defaults, you will lose all your money, but you can compensate for your loss if you are invested in more than one company.
Diversify your funds among sectors also. Make sure that you do not put money into different companies in the same sector. At times some sectors may perform poorly while another sector grows tremendously.
There is a tax deduction at the source if interest from company FDs does not exceed Rs. 5000 a year. If you diversify your funds in different FDs, you can save on taxes on all these FDs.
Assets
Whenever you invest somewhere, you get something in return for that investment, And what you get is called Assets. Assets’ language is something that can give you a monetary benefit or profit. Such examples are Gold, Silver, Fixed Deposits, Shares, and Bonds; these are types of assets that benefit you over time and or their bellows, significantly increasing with that time.
Invest Short Term
It is better to invest in the short term while investing in Company FDs, especially when the company is low on ratings. This is because we can switch our funds if the company is not performing well.
However, investing in a concise term is also not good as you would not get many returns, and also, a company’s performance cannot be gauged in the concise term.
It is only natural to look for options that give us good returns and are low on risk. In that case, Company FDs are the right choice because they go midway between good returns and high risks. Therefore invest in company FDs to get good returns while avoiding very high risks.
Final Words:
I have shared a simple detail on what things to look for while investing money in fixed deposit funds at a beginner level. Still, there are many things in investing money that require colossal time to analyze, but if you do not know which plan can give you good returns, you should not invest money.
Every time investing in the stock market or fixed deposit, you should analyze everything from the first level, then you can easily pick up a good plan for future returns. If this article is helpful for you, then share it with your friends who are a beginner in this industry and want to gain information about fixed deposit funds.
You May Like to Read: How to Diversify Your Savings
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