Should You Invest Your Money in Company/Corporate Fixed Deposits?

by Vinaya HS on October 27, 2011

in Finance

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A reader had written in some time back asking me if investing in fixed deposits issued by companies/corporates was a good investment idea. Here’s my take:

  • You should think about investing in company fixed deposits only when you have some surplus cash that you’re prepared to lose should the worst were to happen.

  • Be prepared to do some independent research on the company. If the company in question is already drowning in debt but the investment prospectus talks about raising money for expansion, you wouldn’t want to handover your money to them would you?

  • Don’t be swayed by the brand name. A company fixed deposit from a well-known brand doesn’t automatically mean it’s a good investment avenue for you.

  • Don’t be swayed by Investment Ratings/Grades from Ratings Agencies. They generally don’t mean much to you — it’s not as if anyone is guaranteeing anything to you by giving out such a number.

Can you add to this list?




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{ 2 comments… read them below or add one }

Irshad October 27, 2011 at 4:28 PM

I will not invest in these CD. I am not comfortable take risk & analyze the company’s track record, else I have depend on INITIAL report from third party rating agency which could change later after my investment, right?.

What are your thoughts in differentiating the investment in CD or direct investment in equity? In both cases, we are investing in same company but by different means.

Vinaya HS October 31, 2011 at 3:49 PM

@Irshad:

If you’re thinking of earning returns in the form of dividend payouts, even that’s not guaranteed.

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