High deposit rates offered by companies in slowdown
By Neelima Shankar
Apr 16, 2009
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At a time when banks are discouraging deposits by lowering the interest rates, companies are offering attractive returns to the investors. Interest rates as high as 12% on a one year deposit and 12.5% on deposits for three years are been offered by the companies.

The financial advisory companies are getting a lot of queries regarding these deposits in the recent time. An official with an investment advisory firm said, "We are getting a lot of queries about fixed deposits (FDs), including company deposits. Our clients are interested in assured returns, as they have lost money in equity mutual funds."

He adds that, "But not many people are coming forward to make investments as they are not sure about the safety of their capital. They have heard old stories about company duping their parents or relatives."

Director of Transcend Consulting, Kartik Jhaveri also puts the same point. "Companies are coming out with deposit programme, but it is not as if they have crowded the market with their offerings and people are jumping to make investments. As far as we are concerned, we are very clear that the safety of capital is the most important thing you should consider while opting for an FD. We don't compromise on that," he said.

The investment advisors recommend investors to be careful while investing in these companies deposits. They say that investors may be taking unnecessary risk to get higher returns from these deposits.

A certified financial planer with My Financial Advisor, Amar Pandit says, "We are not comfortable with some company FDs. There is the question of corporate governance and quality of balance sheet. That is why these companies are offering a little more interest than the bank deposits."

"In fact, they are compensating with a higher interest rate for the higher risk you are taking," added Pandit.

However the question arises is how these advisors earn as they have to pocket some of that extra interest. "We don't look at company FDs if they are not from trusted brands like Tata or HDFC. We tell our clients they are better off earning 10-10.5% in a safer place than taking extra risk for 12%," says Amar Pandit.

"We are also slightly skeptical of the real estate sector because of the corporate governance and transparency issues. We have even stayed away from fixed maturity plans which invested in the real estate papers," he added.

Meanwhile Jhaveri also insist that investors should go in for high-rated investments in order to make sure that there is low risk involvement and the money is safe.


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