Fixed Deposits in companies that earn a fixed rate of return over a period of time are called Company Fixed Deposits. Financial institutions, Non-Banking Finance Companies (NBFCs) & Manufacturing companies also accept such deposits. Deposits thus mobilized are governed by the Companies Act under Section 58A. These deposits are unsecured, i.e., if the company defaults, the investor cannot sell the documents to recover his capital, thus making them a risky investment option. Company Fixed Deposits are adequate for regular income with the option to receive monthly, quarterly, half-yearly, & annual interest income. Company FDs can be an interesting investment option if you know how to select the right FD, & how to avoid the not so good ones.
Here are some of the points that investors should keep in mind
Spread your Risk
The deposits should be spread over a large number of companies engaged in different industries. By this way, you will be able to diversify your risk among various industries/companies. Try not to put more than 10% of your total investments in one particular company.
The performance of the companies should be reviewed at maturity. This will help you decide whether to renew or reshuffle the deposit. It is also wise to keep a track of these companies by checking their share prices, balance sheets, annual reports, etc.
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