Fixed Deposits, once a very popular instrument of raising funds by the Indian corporates, were almost out of fashion and trend on account of various reasons to include comparatively higher cost of funds, stricter norms under Companies Act requiring regular interval disclosures and compliances, low investor interest (due to past experiences of default), and availability of alternate and cheaper sources of finance to the corporates.
The recent economic slowdown and the overall liquidity crisis, wherein corporates are facing difficulties in raising funds from the alternate sources viz. capital markets/banking system, the trend of deposits issuances has re-emerged. Reportedly 60, companies have offered public deposit schemes in the month of December 08 itself including big names like Tata Motors, United Spirits etc. One can spot one new advertisement almost every day/every alternate day, seeking such deposits from the public.
While these deposits carry attractive returns (interest rates as high as 11-12.5% in some cases), it is important for the investors to not get carried away solely by the attractive returns such deposits offer; and carry out a thorough analysis of the background, management, and financial health of the companies raising such deposits, to ascertain the interest and principal repayment abilities.
The recent economic slowdown and the overall liquidity crisis, wherein corporates are facing difficulties in raising funds from the alternate sources viz. capital markets/banking system, the trend of deposits issuances has re-emerged. Reportedly 60, companies have offered public deposit schemes in the month of December 08 itself including big names like Tata Motors, United Spirits etc. One can spot one new advertisement almost every day/every alternate day, seeking such deposits from the public.
While these deposits carry attractive returns (interest rates as high as 11-12.5% in some cases), it is important for the investors to not get carried away solely by the attractive returns such deposits offer; and carry out a thorough analysis of the background, management, and financial health of the companies raising such deposits, to ascertain the interest and principal repayment abilities.
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