(Priyanka Gupta, Intern Journalist): There is a sense of softening of interest rates in the economy. The Bank’s Fixed Deposit (FD) rates have come down sharply recently. This has frustrated investors seeking guaranteed returns. However, the road to them has not stopped. Many companies are offering returns of up to 10% on their fixed deposit schemes.
There are some big names among them. HDFC, Bajaj Finance, LIC Housing Finance, and Mahindra & Mahindra are among them. The strength of their business and the credibility of the promoters give additional protection to the investors.
These companies are offering 7% to 9.25% returns on their corporate FDs. PNB Housing Finance and Shriram Transport Finance are also offering similar returns.
At the same time, kitchen appliance firm Hawkins Cookers announced a corporate deposit scheme on Monday. It promises a 10 percent annual return and a 10.50 percent return in 36 months. The scheme is opening for investment from September 18.
The company has received an MAA (Stable) rating from Iqra for the scheme. It shows high quality and low credit risk. The company had a profit of Rs 54.20 crores in the financial year 2018-19. In its last financial year, it was Rs 48.70 crore. On an annual basis, the company’s sales were up 17.28 percent to Rs 652.80 crore.
Should you invest?
By the way, financial advisors warn that more returns mean more risk than any other asset class.
Lovai Navlakhi, CEO and founder of International Money Matters, says “When you are getting more returns, it means you are taking more risks as well. This means that the company raising money at higher interest rates may not be able to raise money from the market at lower interest rates.
He said, “Your investment in such products should not be too much. We do not suggest anything that promises more than the usual. It simply means that you are taking more risks than usual. Investors should not invest more than one percent of their total portfolio in such schemes.
Corporate fixed deposits often offer better returns than bank fixed deposits to woo depositors. In order to attract depositors to these schemes, companies are now looking to take advantage of the declining interest rates.
Corporate FDs have a higher risk than bank deposits. RBI guarantee is also associated with bank deposits. At the same time, this does not happen with corporate deposits.
How to choose a good corporate FD?
A credit rating is a measure of this. The AAA-rated scheme means that the risk of default in it is negligible or very low. Risk increases as ratings decrease. Before investing, one must check the track record of the company issuing the pre-closure option, penalty, bond, etc.
Anil Rego, founder, and CEO of Right Horizons says that it is very important to understand the creditworthiness of a company before investing in a corporate deposit scheme. The situation of liquidity is still tight. Many NBFCs have a shortage of cash. Already many defaults have been seen. Before investing in a high-yield fixed deposit, full care should be taken.
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