Company fixed deposits make a comeback

Company fixed deposits make a comeback

New Delhi: The sliding stock market has made many retail investors look for alternative options to invest their money. With bank fixed deposits not offering more than 10.50% interest per annum, company fixed deposit schemes which offer higher returns are making a slow and steady come back.

Many companies are offering as much as 12.50% per annum with a lock in period of between 1 to 3 years. Says Anil Chopra, the CEO at Bajaj Capital, "It is directly in negative co-relation to the stock markets. Because stock markets are not doing well, people have surplus money and they have to deploy it somewhere."

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a5c9e306-9ebf-11dd-a437-000b5dabf613.flvChopra says with mutual funds tanking as well, investors are deploying 20-30% of their money in company deposits.

Wealth management firm Bajaj Capital - the biggest player for company deposit schemes, has registered an increase of 30-40% in investors opting for company fixed deposits in the last six months.

Though companies are offering better returns than bank deposits, wealth managers say checking the fundamentals and credit ratings of the company is very important. "I don’t know if there is any appetite for AA (rating), because people have already burnt their fingers," says PB Ramapriyan, vice president and country head of Karvy Group. Chopra expects rates for AAA companies to be between 10-11%.

The amount of money that companies can raise through fixed deposits differs across sectors. Manufacturing companies can raise up to 25% of their net worth while financial companies can raise up to five times their net worth.

The number of firms floating fixed deposit schemes has increased as well to 150 active ones with good credit ratings. The companies expect these schemes to attract money for at least a year till investor confidence is restored in the stock markets again.