Companies with a net worth of not less than Rs. 100 crore or turnover of not less than Rs.500 crore are allowed to raise deposits from the public.
Fixed deposits (FDs) available in banks are a popular investment avenue for several investors looking for a fixed and assured income. In addition, there are NBFCs and manufacturing companies that raise deposits from the public through their fixed deposits by offering a fixed return.
Future Enterprises Limited (FEL) is one such company currently in the market raising deposits through their FDs. Some of its affiliate company’s formats are Big Bazaar, FBB( Fashion Big Bazaar), Home Town etc.
The minimum deposit is Rs 10,000 while the deposits can be made for 1 – 2 or 3 years under both cumulative and non-cumulative option. Under the cumulative option, the compounding will happen on a quarterly basis, while for regular income, the interest payout happens every quarter.
The FEL deposits are being accepted only from resident citizens having the PAN and deposits from non-resident Indians and foreign nationals are not allowed. The deposits may be made jointly in two or three names. The first-named depositor will be regarded as the beneficial owner after clubbing all deposits in which the person has been named as the first/sole depositor in his/her individual capacity. The Fixed Deposit Receipt will be issued in physical form unless the Applicant has opted for the issuance of Fixed Deposit Receipt in Digital Form.
The interest earned is fully taxable in the hands of the investor and is to be added to the ‘income from other sources’. If the amount of interest exceeds Rs 5,000 a year, tax at source is deducted by the company, subject to submission of Form 15G/H as the case may be.
All company FDs including one from FEL are unsecured and are subject to the Companies (Acceptance of Deposits) Rules, 2014 and other applicable rules or regulations for the time being in force. The FEL deposits carry CARE Ratings of AA – (Fixed Deposit), Outlook Stable, that means a high degree of safety regarding timely servicing of financial obligations. The ratings were obtained on November 01, 2018 and one should be aware that the ratings may change over time and may not be the same during the currency of the tenure.
On the basis of the balance sheet as on 31st March 2018, the company is authorised to raise Rs 1267 crore as deposits, out of which Rs 905 crore can be raised through public, however, the company has proposed to raise Rs 700 crore as of now. The amount of deposit repayable within the next twelve months is Nil and the aggregate of deposits actually held as on March 31, 2018, is also Nil.
Company FDs are one of the riskiest of all the fixed income investments. If any company defaults, as has been the case in the past with several companies, the risk of losing the entire principal in them is highest. The new Companies Act, 2013 has to some extent made CFD’s much safer under the Companies (Acceptance of Deposits) Rules, 2013. Also, provisions have been made for relatively sound companies having a net worth of not less than Rs. 100 crore or turnover of not less than Rs. 500 crore to raise deposits from the public. While the bank FDs are insured up to Rs 1 lakh ( including principal and interest), the company FDs are insured up to Rs 20,000.
What to do
If your risk profile is high, you may consider this FD and some portion of your funds may be invested in keeping the risks in mind. Also, better to stagger the investment across different tenures of 1,2,3 years. Conservative investors should stay away from it even if the rate of interest is higher than other alternative options.