Company Deposits and debentures are becoming increasingly popular with investors. According to estimates, company deposits currently total over Rs.60,000/- crore and are increasing at a rapid rate. It is estimated that about Rs.5,000/- crore are invested every year into company deposits. One common feature of these three instruments is that they are all fixed income securities.
Deposits and debentures can be issued by all companies whereas so far only financial institutions (like Industrial Development Bank of India) and public sector undertakings (like National Thermal Power Corporation, Indian Railways Finance Corporation, etc) are permitted to issue bonds.
1.HIGHER INTEREST RATES:
Selected finance companies with highest credit rating are offering interest rates which is above what the banks pay for there deposits.
2.VARIETY OF DEPOSIT SCHEMES:
Companies are free to design their own deposit schemes and most companies offer one of the following types:
- Monthly income deposits where interest is paid every month.
- Quarterly income deposits where interest is paid once in a quarter.
- Cumulative deposits where interest is accumulated and paid at the time of maturity.
- Recurring deposits similar to the recurring deposits of banks.
- Cash certificate schemes.
Companies do not deduct tax at source up to an interest income of Rs.2, 500 per annum. Further, no tax is deducted at source if the depositor submits from 15H(duly filled in) even if the interest payable exceeds Rs.2500 p.a. However, interest on company deposits is fully taxable, unlike interest on bank deposits and some other investments, covered under Section 80L.