Aug 7, 2009

Company Fixed Deposits - Risk v/s Return

Jindal Steel & Power Ltd. (JSPL, annual turnover of Rs 10,000 cr.), a part of the Jindal Group is a leading player in the steel & power sector. JSPL is offering Fixed Deposit Schemes (FD) with Cumulative and Non-Cumulative options. The tenure is 12, 24 and 36 months. The interest rates corresponding to the tenure are 8.00%, 8.25% and 8.50% p.a. The minimum deposit amount is Rs 10,000. The interest on the Cumulative FD is compounded quarterly resulting in an effective yield of 9.57% p.a. on 36-month tenure.

Another well-known corporate entity, Godrej Industries Ltd. (GIL), a part of the Godrej Group and a leading manufacturer of vegetable oils and chemicals is offering similar Fixed Deposit Schemes with Cumulative and Non-Cumulative options. The tenure is 13, 24 and 36 months and the interest rate is 7.50%, 8.00% and 8.50% p.a. respectively. The minimum deposit amount is Rs 10,000.

The interest amount is subject to deduction of tax at source (TDS).

Debt to Equity Ratio (D/E)
As on Mar 31, 2008 1.03 0.41
As on Mar 31, 2007 1.40 1.14

The Debt - Equity ratio compares the company's total debt to its total shareholders' equity. This highlights how much creditors have committed to the company vis-à-vis how much shareholders have committed. Ratio of more than 1 indicates risk.

The rates offered by these corporate FDs are better than the Bank FDs. However, the risk is higher in Corporate FDs. Investing in them would depend upon the risk profile of the individual.

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