WHAT NRIS NEED TO KNOW ABOUT INVESTING IN COMPANY FIXED DEPOSITS IN INDIABY: NARENDRA PRATAP

NBFCs, like banks, accept deposits from the public in order to finance their operations. Funds are held for a fixed period of time i.e. short, medium or long term at a fixed interest rate. Companies opt to finance working capital and other requirements through this route because it is less expensive than obtaining credit from banks. It is an attractive option for investors because returns offered by NBFC’s are higher than those offered by banks for the same product.

NRIs can invest in FDs of public and government companies with limited liability in India.

BASIC FEATURES OF NBFCS:

Risk:

Unsecured

Company’s financial position not guaranteed by RBI

Default risk not covered by RBI (Deposit Insurance is not provided)

Offers are subject to the company meeting credit rating requirements of recognised rating agencies e.g. ICRA; higher the rating, safer the product

BASIC FEATURES OF NBFCS:

Interest Rate:

Varies; currently ranges between 8.50% - 11.00% p.a.

Usually higher than bank rates by about 2% - 3%

Subject to the ceiling rate set by RBI

Schemes available are on cumulative or non-cumulative option

Interest is paid every month, every quarter, half-yearly or every year or upon maturity depending on the scheme

BASIC FEATURES OF NBFCS:

Period of holding:

Manufacturing entity - 6 months to 3 yrs.; NBFCs - 1 yr. to 5 or 7 yrs.

Applicable to fresh investments and renewal of existing holdings.

BASIC FEATURES OF NBFCS:

Minimum Investment Amount :

Varies; currently ranges between Rs.5,000 to Rs.25 lakhs

BASIC FEATURES OF NBFCS:

Companies cannot offer any additional incentives over stipulated charges

TDS is applicable if interest exceeds Rs.5,000 for the financial year

BASIC FEATURES OF NBFCS:

Repatriation:

Repatriation allowed for three years; company’s designated bank branch will credit returns to the holder’s NRE/FCNR account

All non-repatriable amounts (initial investments + repayments) have to be transferred to and from an NRO account

BASIC FEATURES OF NBFCS:

Premature withdrawal:

Allowed by some companies subject to certain stipulations

OUTLOOK

The general consensus is that rates are expected to soften in the upcoming financial year. Current, high interest rates indicate that company deposits are a good option for NRIs who wish to lock-in savings for medium to long term. The expected rupee appreciation should serve to counter fall in yields thus providing good overall returns to NRI investors.