Saturday, September 20, 2014

FIXED DEPOSITS INVESTMENTS BE CAREFUL


In my recent interaction with few financial advisor in different parts of India I came to know that the safest product which carriers a guaranteed return has also fallen into the hands of malpractices. Yes I am discussing about Company Fixed Deposits. Fixed Deposits are the safest options for the traditional as well as for the young generation who prefer to keep some allocation of investments into debt products. This article is not to defame the market neither the genuine companies but for the benefit of the investor and for the genuine good quality companies.

Before I get into the story in detail I would like to accentuate few segments. Currently we all know that the PSU banks are struggling to manage the Non Performing Assets levels. In an recent comparisons over the last 7 years its being found that BSE 500 index companies (excluding BANKS & FINANCE COMPNAIES) as on 31st march 2007 the Loan books of the companies stood at Rs.4.5lac cr which as on 31st march 2013 stood at Rs 20 lac Cr. Interest burden on these companies as on 31st march 2007 was Rs 22000 Cr whereas as on 31st march 2013 it stood at Rs.1.2 lacs Cr. In between the matter of Bushan Steel and Kingfisher Airlines are enough to raise billion thoughts across the Indian financial markets.  All these things limit the scope of fund raising for the corporate India. NCD and Fixed Deposits are the best ways to get funds for expansion or business developments. Now the story here is that many Fixed Deposits are having no ratings and they are offering high rate of interest. High rate of interest and that’s too guaranteed is the bait to catch the hard earned savings of the common people. We investors tend to get into the traps of high interest followed with aggressive marketing advertisements in social media as well as in press followed with some financial advisors making the proposition investments to be tempting proposition.

These cash strapped companies would tap the Fixed Deposits and NCD market to raise capital to pay back the banks and later on hang the common investors by default. Their asset might go for sale but where are the buyers for the same and also how many percentages of investors really get back their investments. The recent scam of sarada is a prominent eye opener for the lack for financial education in India. Scams happen due to greed and tempting proposition which acts as a blind trap for investors.

We always tend to forget the past incidents since our memory goes through multi tasking phase, hence for them I am presenting few of the names where investors burnt their fingers. Speak Asia, a Singapore-based company which promised Rs 4,000 monthly payout on an investment of Rs 11,000. The company claimed it did online surveys for big companies such as ICICI Bank and State Bank of India. It managed to collect Rs 2,500 crore in less than two years before the authorities nabbed the company brass in India. Another such scheme was floated by Mumbai-based City Limousine (India).

Take the case of Rose Valley. The return on the various investment schemes run by the company varied from anywhere between 11.2% to 17.65%. PACL offered returns of 12.5-14% on investments. Saradha reportedly offered returns of 17.5-22%. Well in the past you will hundred of companies like this where investors like us has become victim of the same.

Avoid the traps of roadside hoardings and news paper advertisements announcing double digit interest rates on fixed deposits are back in vogue. One of the major differences between Bank Fixed Deposit and Corporate Fixed Deposits are Bank deposits are secured by Deposit Insurance and Credit Guarantee Corporation (DICGC) up to a maximum of Rs. 1 lakh per account. In case of bank failure, DICGC protects your deposits up to a limit of Rs. 1,00,000 held in any nationalized or private sector bank or co-operative bank in India. In case of corporate Fixed Deposit this does not exists. The best examples are the Zenith Birla (India) Ltd and Birla Power Solutions.

Before investing in any Fixed Deposit or NCD please follow the below mentioned guidelines:
·         Read the Prospectus of the issue. Every issue has to file a Prospectus with the SEBI and get that approved. Hence always ask for the Prospectus
·         Read the purpose/objective for the Fixed Deposit or NCD
·         Financial conditions like profit, sales, cost, debt, interest cost trend over the last 5 years
·         Read about the management and try to collect information about the management and promoters from other sources.
·         Find details about the credit quality of the FD of NCD.
·         Never Invest below AAA or AA+ rated rating based FD of NCD.
·         When you find any FD offering high interest rates remember they don’t have ratings and their quality of business and management are doubtful in the long term.


Invest safely and follow proper principles and guidelines before investing. Don’t listen to rumors for investing and have your guts while doing or taking decisions for investments. The real problem begins for the investors as well as for the genuine good quality companies to raise capital through FD or NCD in the long term when one gets hurt by the defunct companies. 

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