Fixed Deposits mobilized by the manufacturing companies are governed by the provision of section 58 A of companies Act 1956. The fixed deposits are mainly of two types viz: Manufacturing company deposits and Non Banking finance Companies deposit. These fixed deposit provide a periodic fixed & committed return on the deposits for the till the maturity period.
Manufacturing companies are permitted to mobilize deposits from the public upto 25% of their networth and upto 10% from the shareholders. The deposit period generally ranges between 6 months to 36 months. Manufacturing companies that have sound financials are always preferred over other companies. The interest rates will depend on the market rates and the company's requirement for the funds. An investor will have an option to get monthly, quarterly, half-yearly or yearly interest and will also have a choice to chose cumulative option under which interest is reinvested and paid on maturity. Following are some of the criteria for choosing a good manufacturing company deposit
The company is from a reputed group and should have a minimum track record of 5 years in their line of business.
Should be a listed and traded company or a government company.
The company should have not defaulted on their deposits in the past.
The company should have a sound management and should offer reasonable returns that are comparable with bank return
The Company Should have a decent dividend track record
The Company's debt to equity should be well within the acceptable levels
Non Banking finance companies basic activity is leasing and financing and they borrow from public as deposits for the purpose of lending activities. Their profits are from the interest spread they earn from the financing activities. The Finance company should necessarily have a credit rating from one of the rating agencies for mobilizing deposits. These ratings are assigned by the Rating Agencies like, CRISIL, CARE, ICRA and FITCH, The rating indicates the stability of the company and timely repaying capacity of the company of the principal and interest. The varied rating indicates the degree of the safety to the capital and interest. AAA (pronounced as triple A) is the highest rating assigned and indicates highest safety of the capital and timely repayment of capital and interest. Finance companies can accept deposit between periods 12 months and 60 months and the interest rates are offered according to the market conditions. Currently, these companies offer interest ranging between 8% - 12% with an interest payment option of monthly, quarterly, half-yearly, yearly and on cumulative basis. The deposits are attractive as they offer better than bank deposit rates and provide good service to the investors. Investors also have the option of availing loans against these deposits.