Companies raise money through different channels, IPO’s, FPO’s, issuing bonds and from time to time, you also find them raising money through Fixed Deposits, such as this JP Associates Fixed deposit scheme. On almost all occasions, you will find that the interest on deposits offered by companies is more than that of prevailing Bank rates. This makes sense, since the investing in companies is not as safe as putting your money in a Bank and hence you are being paid a premium.
Mind you, investing in Banks’ too isn’t completely safe, but in case the unexpected happens, you’ll have the backing of the Government and most Bank deposits any way come with insurance benefits. And, as you may know, all scheduled Banks’ in India are governed by the Reserve Bank of India which tries to keep every bank as healthy as possible and hence them falling off is only a remote thing.
The same doesn’t apply for company deposits. There is no regulator, like RBI, for private companies and hence, the safety factor here is a little shaky.
You have help in such cases from the rating agencies. These agencies generally give ratings to companies that invite deposits from retail investors. You can be sure that your deposit will be in safe hands and will yield the advertised interest rate if the rating is at least ‘AAA’. It doesn’t mean that investing in any company that are rated less than AAA is completely unsafe, but it certainly does mean that it is less safe.
