Sunday, August 1, 2010

What is Company Deposits

Companies you mustn’t invest in
1.New companies which have yet to prove their financial and managerial expertise, or which have not declared a dividend.
2.It is best to avoid private limited companies, and partnership firms. Such companies are under no obligation to publish their working results and it is therefore very difficult to judge their performance and ability to meet their obligations.
3.Companies whose balance sheets show accumulated losses.
4.Companies which claim to pay a rate of interest higher than 10% to 12% p.a. , unless this is due to frequency of compounding.
5.Companies with a poor liquidity position,
6.Companies which are not paying regular dividends to their shareholders.

Do not renew your deposits automatically

Never renew your deposits automatically without first asking for a refund of the matured amounts. A timely refund establishes the credibility of the company in honoring its commitments.

Check CRISIL or ICRA rating
Look for the CRISIL or ICRA rating. The Credit Rating and Information Services Ltd (CRISIL) and Investment Information and Credit Rating. Agency of India Ltd (ICRA) rates various company deposit schemes. Invest only in highly rated companies.
You should also keep in mind that CRISIL may revise its ratings from time to time. CRISIL put the following companies on rating watch from time to time.
Diversify Your Deposits.
Don’t put all your money in any company, no matter howsoever sound it may be. Things can, and do, change. Though Nirlon was a blue ship company in early 80’s , later it became a defaulter.
Give preference to local companies
When you are investing in company deposits, give preference to good companies in your state, city or town. So far as possible, do not invest in companies which are located far off. If it is a local company, you can personally visit and try to get your money back as soon as you hear of any cash-flow problems. Remember the words of Theodore Roosevelt: ‘Nine- tenth of wisdom Consists in being wise in time’.

1 comment:

  1. Hi Author,
    Thank you for such a valuable input. I invested in one company fixed deposit 3 years ago (March 2014) as our first expereince with the company in 2010-2013 was good(D. S. Kulkarni Developers Ltd Fixed Deposit). They gave us post dated cheque for Principle amount and I choose ECS payment for interest component. Lately, in March 2017 the FD's got matured. However, company position is not so good and they requested us to renew it for another year OR at least 6 months due to liquidity issue(They sent letter for that). It's Public company (D.S.K. Developers). They have many more companies in different sectors.

    What are our options ? I learn that company fixed deposit are not secured and are not backed by RBI. However, in this case we have post dated cheques from the company. Does that gives us some power to fight the case. If the cheques are dishonored by the company can we go to court. In our case "The cheque is issued towards discharge of a debt or legal liability."

    According to Section 138 of the Act, the dishonour of cheque is a criminal offence and is punishable by imprisonment up to two years or with monetary penalty or with both.

    If payee decides to proceed legally, then the drawer should be given a chance of repaying the cheque amount immediately. Such a chance has to be given only in the form of notice in writing.

    The payee has to sent the notice to the drawer with 30 days from the date of receiving “Cheque Return Memo” from the bank. The notice should mention that the cheque amount has to be paid to the payee within 15 days from the date of receipt of the notice by the drawer. If the cheque issuer fails to make a fresh payment within 30 days of receiving the notice, the payee has the right to file a criminal complaint under Section 138 of the Negotiable Instruments Act.

    Will really appreciate your guidance