Comparing Bank Deposits and CFDs
Company Fixed Deposits These deposits are categorised as ‘unsecured’ in the books of the company – this means repayment of principal and interest is not guaranteed, and in case of any default or delay, investors have little recourse. Investors cannot sell the documents to recover their capital, thus making it a risky investment option. These deposits are not covered by deposit insurance as they are exempt under the rules. CFDs offer a better rate of return (ranging from 7.80 per cent to 8.65 per cent per annum. CFDs have a minimum base amount for investment below which none can invest in them. CFDs are renewed with the principal amount of matured deposit only. A fresh application form needs to be submitted for effecting renewal on maturity of the deposit. Premature withdrawals can be made subject to terms and conditions of the company. No loans are granted against CFDs. These are considered to be ‘secured’ against the fixed assets of the bank; hence, even in the unlikely event of bankruptcy, the deposits will rank as ‘high priority’ in repayment. Bank deposits offer a comparatively low return, ranging from 7.75 per cent to 8.25 per cent. Bank deposits can be invested for a minimum of Rs 1,000 onwards. Bank deposits can be reinvested with paid interest component. Renewals can be effected on the FD opening form submitted earlier. Premature withdrawals can be made (except on tax shield deposits) at any point of time during the currency of the deposit. Loans can be availed against bank deposits till their maturity, subject to payment of interest on the loans.