Types of Savings and Investment
Company deposits are deposits made by the public with companies. Just like in a Fixed Deposit, people hold deposits with the bank, here deposits are held with Non-Banking.
Finance Companies (NBFC). The Company pays a fixed rate of interest on the deposits. The interest rate depends on the amount and tenure of the deposit. Interest can be paid out monthly, quarterly, half-yearly or annually.
The company needs to get its credit rating done first from institutions like CRISIL, CARE or ICRA. The better the rating, more will be the belief of people in the company. It would also assure the people that they would get their money back. These deposits are governed by Section 58A of the Companies Act.
How to invest in Company Fixed Deposits
Offers for investment are announced directly by the company. One can invest in them either through brokers or directly, by applying online or offline. In order to invest, the application form needs to be filled first and Xerox copies of some identity documents need to be submitted.
Principal and interest earned are fully taxable as per one’s income tax slab. There is no exemption provided for these deposits. TDS (Tax deducted at source) is applicable if interest exceeds ₹5000/- in a year.
Risk associated with Company Fixed Deposits
Getting back the principal along with the interest rate is not guaranteed. Some companies fail to service their debts. One should always make these deposits with companies which have a high credit rating. Their chances of defaulting on payments is very low. The interest rate offered by companies is not good enough if the inflation rate turns out to be higher than their rate. Hence, these deposits are not inflation protected.
These deposits are not highly liquid as well. Some companies do allow premature withdrawal, after charging a high penalty.