What is a Company Fixed Deposit?
A company fixed deposit is similar to the fixed deposits offered by the banks. These are offered by public companies which offer an attractive fixed rate of return in exchange of the money deposits for a specified period of time. Such deposits are governed by provisions made under Companies Act of 1956 and the Companies Deposit Acceptance Act Rules of 1975.
These deposits are unsecured in nature since the investor is exposed to risk of non-tradable security in event of a company default. However there are several favouring factors for a lucrative investment like
- Higher returns compared to other fixed deposits.
- Short-term deposits with only minimum six month lock-in period allow flexibility in investing
- TDS is not deducted as tax is applicable on interest income above Rs. 5000 each financial year.
What are the types of Fixed Deposits Available?
There are two type of Fixed Deposits available
- Cumulative Deposits – which pay interest along with the principal upon maturity of the deposit
- Non-cumulative Deposits – wherein the interest is paid periodically i.e; monthly, quarterly, half-yearly or yearly as per the offer.
Which companies can accept Deposit?
All companies registered under Companies Act of 1956 can accept fixed deposits. The list includes
- Manufacturing Companies
- Non-Banking Finance Companies
- Housing Finance Companies
- Financial Institutions
- Government Companies
What is the limit up to which a company can accept deposit?
A Non-Banking and Non Finance company can raise deposits within certain limits. It can accept deposit limited to 10% of the aggregate paid-up share capital and reserves from shareholders or guaranteed by directors. The limit can raise upto 25% of the paid-up share capital and reserves from other investors.
A Non-Banking Finance company can accept deposits upto
- Four times its net owned funds in case of equipment leasing companies
- One and half times its net owned funds in case of Loan or Investment companies
How is interest payment made in case of Company FDs?
Interest is paid as accrued basis schedule. i.e; monthly, quarterly, half-yearly or yearly for non-cumulative deposits or upon maturity in case of cumulative deposits. The interest is paid through cheque or ECS facility
When is TDS deducted on the interest from Company Fixed Deposits?
As per the Income Tax Act, the TDS is deducted once the interest from deposit crosses Rs. 5000 in a financial year.
Who can buy a Fixed Deposit?
All Company Fixed Deposits are open for investment by Individual investors who are resident in India, including minors. NRIs, Corporates, HUF, Partnership Firms, Trusts and Co-operative Society can also invest in certain company fixed deposits that are open to them as investors.