Q: Can you throw some light on the pros and cons of investing in company FDs ? Also please let me know what you think about the following companies in terms of ratings and other service attributes
1. Shriram Transport Finance
2. Deewan Housing
3. JP Associates
Ans: Thanks for the question. Before we answer it, a quick primer on the subject matter of your query – company fixed deposits – for the uninitiated.
Most people are very familiar with fixed deposit products offered by banks – both private and public. These FDs are secured by RBI up to Rs 1 lakh per deposit per bank branch, which means that to a certain extent the investor money is protected in such cases.
Company fixed deposits, on the other hand, are offered by Non-banking finance companies or by public limited companies, and not by banks. These too offer a fixed rate of return depending on the tenure of the deposit. However, they are not secured by RBI or any other regulatory body. Due to this inherent risk in the product, such deposits are offered at a higher rate of return compared to bank FDs – typically 1-3% higher.
As an investor, we need to be prudent and choosy in picking the company deposits that we invest in – one cannot sacrifice security in search for higher interests nor can we ignore better returns by being completely risk averse.
And that brings us to the question – as the questioner correctly points out, we need to look at the ratings of a company and other service attributes before choosing where to invest.
When it comes to ratings, we should note one important thing – there are different kinds of companies offering deposits and not all of them are rated. There are NBFCs, government entities, and manufacturing companies (publicly listed companies) offering deposits. Of these, ratings firms such as CARE and CRISIL provide ratings only for NBFCs and government entities. Publicly listed manufacturing companies’ deposit products are not rated.
One can see the ratings of these companies and more at MoneyControl’s Company FD page:
As you can see, Shriram Transport Finance and Deewan Housing (DHFL) are rated. JP Associates (manufacturing conglomerate) is not. Shriram has a rating of CRISIL FAA+ and ICRA MAA+, while DHFL’s rating is CRISIL AA+ and Brickworks FAAA.
(Explanation of ratings here – http://www.moneycontrol.com/news/fixed-income/credit-ratings-ratingsdebt-instruments_653221.html)
Regarding service quality:
At FundsIndia.com, we offer all three of these deposit products although JP Associates has been a rather recent entry into the fold. So, we have a bit of experience to comment on the service quality offered by these firms.
In our experience, Shriram’s service has an excellent track record. We have rarely, if ever, received customer complaints in this regard, and even when we did, we have been able to sort out the issue with their staff easily.
We do not have as much of a track record with DHFL or JP to comment confidently.
My advice would be to go with a good service provider such as Shriram even if their interest rates are marginally lower than the other two.
This question has been answered by Srikanth Meenakshi of our financial advisory team. Write to firstname.lastname@example.org if you would like us to answer your question.