Fixed Deposits in companies that earn a fixed rate of return over a period of time are called Company Fixed Deposits. Financial institutions and Non-Banking Finance Companies (NBFCs), Manufacturing Companies also accept such deposits
Acceptance of deposits by companies are governed by the applicable provisions contained in the Companies Act, 2013
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. However, there are certain proposed provisions included in the Companies Act, 2013, wherein it is likely that the said deposit could be secured
Nevertheless one can look to invest in companies having group reputation and good credit rating.
Benefits of investing in Company Fixed Deposits
- Minimum lock-in period is 6 months.
- No Income Tax is deducted at source if the interest income is up to Rs 5,000 in one financial year
Who Can Apply
- Resident Individuals
- Hindu Undivided Family (HUF)
- Sole Proprietorship
- Partnership Firms
- Companies including group companies
- Club, Association and Society Family Trust
Payment of interest
Broadly there are two options: Cumulative & non-cumulative
For cumulative option :Interest on the deposit, upto the date of maturity,will be payable, from the date of the realization of cheque or in the case of RTGS / NEFT, the date of transfer to companys bank account, which would be considered as the ‘value date’.
Options for Interest on deposits placed under non-cumulative options are as given below:
Monthly Option , Quarterly Option , Half Yearly Option , Annual Option
As per RBI Regulations, premature withdrawal is not allowed before completion of three months from the date of deposit, except in case of death of depositor. No interest is payable in case of request for premature withdrawal after the expiry of three months but before six months from date of deposit.
Interest, if any, which is already paid to the depositor in respect of the deposit which is prematurely withdrawn before 6 months from the date of deposit, will be deducted along with TDS from the principal amount of deposit and net amount of deposit will be paid to the depositor.
In case of request for premature withdrawal after the expiry of six months and before maturity, the interest payable is 2% lower than the interest rate applicable for the period for which the deposit has run. Alternatively, if no rate has been specified for that period, then 3% lower than the minimum rate at which the public deposits are accepted by BFL. Click here for more information.