Corporate fixed deposits, or company fixed deposits as they are also called, have been present in the Indian market for a long time now. Corporates have used this instrument to raise funds as and when they required.
For some years though, its use had become scarce as companies found it more convenient to raise money from the share market.
However, in the recent years corporates have again started to issue company fixed deposits owing to the economic slowdown and the increased difficultly faced by them to raise money through the share markets.
Features of Company FDs
1. The interest rates offered on Company FDs are generally higher than those offered on bank fixed deposits.
2. The interest income is provided on a fixed periodic basis such as monthly, quarterly, half yearly or annually.
3. The company fixed deposits have different maturity periods ranging from six months to seven years.
4. Corporate FDs provide the investors an opportunity to choose a nominee for the deposit.
5. Company FDs are riskier as compared to bank FDs as the returns on the former are only assumed.
Unlike bank FD, the interests paid on corporate FDs are not fixed and can vary depending upon the financial conditions of the company.
Another thing to note is that if the firm faces difficult financial situation, the investors will be paid interest only after all the secured creditors have been paid off. Therefore, the investors have a risk of losing money. 22nd September 2012 From India, Ahmadabad