Is investing in Hawkins Cookers' fixed deposit safe? Interest rate around 9%

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Fixed Deposit
Fixed Deposit

New Delhi : At a time when Banks across the nation have drastically reduced their interest rates on the Fixed Deposits, Hawkins Cookers Ltd will be launch its new FDs schemes at 9% interest for a three-year deposit and 8.5% for one-year deposit. Considering the current situation of the nation, the interest rates look lucrative. 

However, one must understand the risks which come attached with company's FDs. "They are riskier than FDs of banks. Bank deposits are insured up to ₹5 lakh. Company FDs don't have any such cover. If a company faces financial trouble, unsecured depositors can do little to get their money back," Malhar Majumder, partner, Positive Vibes Consulting and Advisory, a financial planning firm, was quoted by a report in Mint.

According to Majumder, if a company is raising money at a specific rate from depositors, it could also mean that banks are charging the firm a higher interest rate for loans. Most companies would go for an FD only when they are getting a lower rate compared with other sources of funds. "If a bank is giving a loan at, say 8%, the company will not accept deposits at a higher rate," said Majumder.

They say, 'higher interest rates mean higher risk'. Considering the current financial situation of the nation, it is better to go for low risk investments.

Of the FD portfolio, how much should investors put in company FDs depend on their risk appetite. It could be as low as 1% for some or a maximum of 5%, according to investment advisors.

"Company FDs can help to increase the overall debt portfolio returns. But they are not a replacement for safer options such as bank FDs or small savings scheme or RBI bonds," said Rao.

Another safer option for investment in companies FD could be putting funds for shortest possible duration.