Company Deposits

There are multiple company deposits ( CD's) that are available in the market as of today giving a lot more returns vs what the bank fixed deposits are providing as of today.

But before we go there , lets just understand why company deposits exist. Why are companies borrowing from retail/ institutional investers vs taking money from banks who are flush with funds.

CDs provide companies an opportunity to raise more funds than what banks are able to offer them

1. The risk that they have inherent in their business.

Sometimes when companies approach banks because of the inherent risks in the business , the banks are not willing to take the risk or ask for much more interest than what the company is willing to give

2. Requirement of Short term funds

Companies need to ensure that their paying capacity for their short term debt / long term debt matches their business cycles. Because of these CDs is one good way for companies to turn over the debt and help consolidate it into a particular payment year.

Hence you will always find that CDs provide more returns than what an ordinary investor can find available from FDs or Govt bonds--- ( this is in very layman terms called the Risk Free Return).

How to identify which CDs to invest in

When evaluating companies where one can invest in CDs we need to ensure that the followng rules are upheld

1. Company has a good rating-- AAA/AA+ etc.

2. The Company has a good history of making payments

3. The Company business cycle is not in a major downtrend. This can be found from the balance sheet or just majorly frm the market.

There are some good opportunities that i can see in the market as of today-- I am still thinking through which ones to invest in. My eyes are on
1. Unitech-- 12% pa
2. JP associates
If you find any other available in the market-- please write back to me..
Enjoy investing.