Company Deposits | wealthymatters

Investing in NCDs

July 4, 2011 4 Comments

A non-convertible debenture is a fixed income instrument where the issuer agrees to pay a fixed rate of interest to the investor. An NCD cannot be converted into equity of the issuing company unlike convertible debentures.NCDs are good substitutes for fixed deposits,especially company deposits.

Debentures are of two types secured and unsecured. The debentures with a “charge” on the assets of the issuer are called secured debentures. So in case of a default by the issuer, the secured debenture holders are paid by selling the assets against which the charge was created. Secured NCDs offer lower interest than their unsecured counterparts. Read more of this post

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Company Deposits – Caveat Emptor

January 20, 2011 1 Comment

When inflation is high and interest rates on term deposits and bonds are low, or when fixed income instruments start offering equity like returns during liquidity crunches, company fixed deposits become tempting. Here are a couple of things to consider to rein in your greed.

1.No one became a billionaire via company deposits, unless he owned the company taking the deposits, so hold your horses.Company deposits can be tax inefficient, so think twice before sticking your in money here.

2.A company FD is an unsecured debt so if a company is liquidated, FD holders are paid after debenture holders and commercial lenders. By then there might not be enough to pay back the principal, much less interest. Liquidation proceedings take time so even whatever little money might be returned to you will take a while to come. So avoid companies with accumulated losses. Read more of this post

Filed under Paper Assets Tagged with Company Deposits, Company Fixed Deposits, Fixed Income Instruments, Inflation, Interest Rate, Paper Assets, RandomBlog2011, Rating, tax, unsecured debt

Running The Interest Rate Race

January 19, 2011 2 Comments

In inflationary times fixed income instruments may not be such a great idea , especially if the interest rates are just not that high.But there is no way we can avoid these instruments.

1.We need them to add steadiness to our portfolios especially when the stock markets show volatility.

2.We need them to park the money we plan on using within a definite time horizon.

3.We need them again when we have to route a steady stream of payments into another investment and want to simultaneously avoid both the risk of a capital loss due to a short term investment in a mutual fund and the low returns of a liquid fund.

In such a situation we just need to find the highest possible interests which our funds can earn in a given time over and above the rate of inflation while simultaneously reducing the risk of capital loss. Read more of this post