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Here are their ratings - Gati is rated moderately safe (CARE’s BBB+), Godrej & Boyce is rated highly safe (CRISIL’s FAA stable), KCP has Crisil’s FA (Negative) rating, Prism Cement is rated adequately safe (India Rating’s IND tA) and Ceat has a stable rating or IND tA+.
While most of these have decent ratings, experts believe ratings are meant only for making the scheme selection process easier in order to make a sound investment decision. “We have always recommended company deposits to investors as a portion of their fixed deposit portfolio — up to 50 per cent for investors with moderate risk appetite and investment horizon of two to three years — because investors earn more here. However, investments should only be made in well rated deposits — AAA or AA+,” says certified financial planner Pankaj Mathpal.
Soon after the New Companies Act 2013 came into effect in this April, many manufacturing companies stopped accepting and renewing fixed deposits. Now, a company has to get itself rated by a rating agency in order to raise money through fixed deposit.
It could be a good time to invest in these schemes now because once the Reserve Bank of India cuts rates, company deposits’ rates could also fall. This could be specially be helpful to those in the low income tax bracket, who need regular or additional income. But opt for company deposits only if you are willing to take credit risk. Also be cautious of companies offering very high rate of returns. Because a higher rate is often to set-off a low credit rating.
For instance, Godrej & Boyce, which has a high rating is offering a relatively lower 9.50 per cent for three years. In comparison, KCP is paying 10.50 per cent, 10.75 per cent and 11 per cent for one, two and three years with a lower rating. Gati is paying 11 per cent for one year, 11.50 per cent for two years and 12 per cent for three years; Prism Cement is offering 10.25 per cent for all three tenures; Ceat will fetch you anywhere between 9.50 per cent and 10.50 per cent for the same tenures. Comparatively, State Bank of India’s one-year and three-year deposits will earn 8.75 per cent each.
Financial planners say the trade-off between bank and company deposits may not be much in the long-term and hence, the later could be avoided.
Says Abhinav Angirsh of InvestOnline.in, “Ratings are no recommendation to invest in deposit schemes. This is only another parameter to judge the quality of the company.” An easier way could be to opt for trusted brands like HDFC (AAA rating), Mahindra Finance (AAA rating), PNB Housing Finance (AA rating).
“As ratings are now available, investors should keep a regular track. Sometimes, a company is rated well and is later downgraded in tandem with its credit outlook and investors lose on their money,” warns Angirish. For instance, CARE downgraded Bhushan Steel’s ‘A+' rating on its long-term bank debt to ‘A’ in January this year and then to ‘BB’ in March.
Additionally, though the government has asked companies to insure company deposits for up to Rs 20,000 most are not doing so. “Reference is drawn to Ministry of Corporate Affairs’ Notification dated June 6, 2014 providing that companies may accept deposits without insurance till March 31, 2015,” says Godrej & Boyce’s deposit brochure. All bank deposits --- savings, fixed, current, recurring --- are insured for up to Rs 1 lakh (principal and interest).
Then, while tax is deducted at source (TDS) on interest income of more than Rs 10,000 on bank deposits, the same is deducted for interest income of more than Rs 5,000 on company deposits.
