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Fixed Deposits - FAQs
Bank Fixed Deposit Vs Corporate Fixed Deposit Vs Non Convertible Debentures
     
1. Q : What is Company Fixed Deposit?
  A : Company Fixed Deposit is the deposit placed by investors with companies for a fixed term carrying a prescribed rate of interest.
     
2 Q : Why is interest from Company Fixed Deposit higher than Banks?
  A : Company Fixed Deposits have always offered interest which is 2-3% higher than Bank Deposit rate, because they have to pay higher interest to banks for borrowing money.
     
3 Q : How is interest payments made?
  A : Interest is paid on monthly/quarterly/half yearly/yearly basis or on maturity, and is sent either through cheque or through Electronic Clearing System basis.
     
4 Q : When is TDS deducted on the interest from Company Fixed Deposits?
  A : TDS is deducted if the interest on fixed deposit exceeds Rs.5000/- in a financial year.
     
5 Q : Is there any scope of appreciation of principal?
  A : No, at the end of deposit period, the principal is returned to the deposit holder.
     
6 Q : How to choose a good company deposit scheme?
  A :
  • Ignore the unrated Company Deposit Schemes. Ignore deposit schemes of little known manufacturing companies. For NBFCs, RBI has made it mandatory to have an 'A' rating to be eligible to accept public deposits. One should go further and look at only AA or AAA schemes.
  • Within a given rating grade, choose the company with a better reputation.
  • Once you decide on a company, choose the schemes that have given a better return. Unless you need income regularly, you should prefer cumulative schemes to regular income options since the interest earned automatically gets reinvested at the same coupon rate, resulting in 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 can not only keep a watch on the company's rating and servicing, but also have your money back in case of an emergency.
  • Check on the servicing standards of the company. You should not invest in companies that care little about investor services, like promptly sending interest warrants or the principal cheque.
  • Involve your Financial Planner / Investment Advisor for advice in all your transactions. Do not bypass and invest directly.
  • Check whether the company accepts outstation cheques and makes payment through at par cheques, especially if you do not live in the same city where the company is situated.
     
7 Q : Which companies can accept deposits?
  A : Companies registered under the Companies Act 1956, such as:
  • Manufacturing Companies.
  • Non-Banking Finance Companies.
  • Housing Finance Companies.
  • Financial Institutions.
  • Government Companies.
     
8 Q :

Up to what limits can a company accept deposit?

  A :

A Non-Banking Non-Finance Company (Manufacturing Company) can accept deposits subject to following limits.
Upto 10% of the aggregate of paid-up share capital and free reserves if the deposits are from shareholders or guaranteed by the directors, Otherwise upto 25% of the aggregate of paid-up share capital and free reserves.

A Non-Banking Finance Company can accept deposits up to following limits:An Equipment Leasing Company can accept four times of its net owned fund. A Loan or Investment Company can accept deposit up to one and half time of its net owned funds.

     
9 Q : What is the period of the deposit? 
  A : Company Fixed Deposits can be accepted by a Manufacturing Company having duration from 6 months to 3 years.  Non-Banking Finance Companies can accept deposit from 1 year to 5 years period.  A Housing Finance Company can accept deposit from 1 year to 7 years. 

Companies where you should not invest

  • Companies that offer interest higher than 15%.
  • Companies that are not paying regular dividends to the shareholders.
  • Companies whose Balance Sheet shows losses.
  • Companies that are below investment grade (A) or less rating.
10 Q : What is the difference between a Fixed deposit and a Cumulative deposit ?  
  A : In Fixed deposit scheme, interest is payable at specified frequencies. The scheme will be convenient for persons like pensioners, who require periodical interest payment. In Cumulative deposit scheme, interest is payable at the time of maturity along with the principal. This scheme is suitable for persons who do not require periodical interest payment and this can be thought of as a money multiplier scheme.
11 Q : Can an NRI invest in deposits ?  
  A : Yes, NRIs can place funds in fixed deposits with public limited companies in India in certain situations. If the permission to accept deposits from non-residents was already taken by the Indian company, it is not necessary for the investor to take a separate permission.
However, due to operational constraints, at this moment, FundsIndia has decided not to accept corporate fixed deposits from NRIs. It is very likely that we will revisit this decision in future. We'll keep you posted.
12 Q : What is the difference between form 15G and form 15H?
  A : Form 15G is meant for Resident Individuals who are below 65 years of age. 15H is meant for Senior Citizens who are of 65 years of age or more during the financial year.
13 Q : What is Form 15G/15H and where do I get it from?
  A : Form 15G/15H is a self declaration by the depositor which can be obtained from the company. It is a self declaration which needs no attestation by anybody except in the case of Left Hand Thumb impression which needs to be attested by a Gazetted Officer/Bank Official. Since a copy has to be retained in our files and one copy has to be sent to the IT dept. it is required to be furnished in duplicate. We will send a Form 15G/15H declaration in the month of March and the depositor is required to return the same in duplicate duly completed and signed by the first Depositor. Form 15G/15H is sent to the depositor on the basis of the estimated interest payable for the full financial year and such estimation is calculated as on 31st March. In Cumulative deposit the estimation will be on the assumption that the deposit will be renewed for the entire maturity value on the due date in the following year.
14 Q : If Form 15H is furnished, will there by any query from Income tax dept.?
  A : Since one copy of the Form 15G/15H is required to be sent to I.T.O. it is possible that the I.T.O. may raise some query, when they deem it necessary.