Companies deposit with higher rates a tool for investors

Banks are reducing their deposit rates in view of cutting down their lending rates. On the other hand companies are offering attractive interest rates on their deposits thus it is becoming a good investing option for the people.

Some of the big companies are offering around 12% rate of interest for a one-year deposit and 12.5% for a three-year term. While small time financial advisory companies are claiming that they are getting many queries on these deposits these days. On the other hand seasoned investment advisors, are advising investors to be careful, as they might be taking unnecessary risk to get higher returns from these deposits.

"We are getting a lot of queries about fixed deposits (FDs), including company deposits. Our clients are interested in assured returns, as they have lost money in equity mutual funds," says an official with an investment advisory firm. "But not many people are coming forward to make investments as they are not sure about the safety of their capital. They have heard old stories about company duping their parents or relatives," he adds.

That is exactly the point Kartik Jhaveri, director, Transcend Consulting, makes. "Companies are coming out with deposit programme, but it is not as if they have crowded the market with their offerings and people are jumping to make investments. As far as we are concerned, we are very clear that the safety of capital is the most important thing you should consider while opting for an FD. We don't compromise on that," he says.

According to Amar Pandit, certified financial planer, My Financial Advisor, "We are not comfortable with some company FDs. There is the question of corporate governance and quality of balance sheet. That is why these companies are offering a little more interest than the bank deposits". "In fact, they are compensating with a higher interest rate for the higher risk you are taking."

Then what advice they give to their clients? After all, even they might be interested in earning some extra interest? Amar Pandit explains, "We don't look at company FDs if they are not from trusted brands like Tata or HDFC. We tell our clients they are better off earning 10-10.5% in a safer place than taking extra risk for 12%". "We are also slightly sceptical of the real estate sector because of the corporate governance and transparency issues. We have even stayed away from fixed maturity plans which invested in the real estate papers."

Transcend's Jhaveri is also of view that investors should always go for highly-rated issues with good derivation to ensure their money is in safe hands, minimizing risks.