Tata Group company and Automobile major, Tata Motors has invited deposits from general public at attractive interest rates.
Following are the details of the Fixed Deposit Schemes:
HIGHLIGHTS OF THE DEPOSIT SCHEME
- Minimum Deposit of Rs. 20,000
- Additional deposit in multiples of Rs.10,000
- Recurring Deposit plan for employees
- Additional 0.5% interest for Senior Citizens, Shareholders and
- Employees of the company
Who Should Apply ?
- Investors who are looking for safety of capital and are comfortable with moderate returns on the invested capital can opt for the FD. It would be advisable to buy one Share of Tata Motors to get the additional 0.5% interest. However one should opt for a 3 Year time frame as it offers the maximum benefit and effective yield of 13.5%.
One should remember that Interest earned on Fixed deposit is taxable and hence the actual post tax yield varies from person to person depending on the tax bracket. This means that a person who does not fall into the highest tax bracket of 30% would benefit more from this scheme as the net tax outgo on the interest income would be lesser.
Why is Tata Motors raising money through deposits ?
Tata Motors is facing a liquidity crunch. The company needs money to refinance the $3 Million Debt it had raised for acquiring the Jaguar Land Rover. The company had also launched Right Issue in November 2008 which saw lukewarm response from the shareholders. The company has approval to raise Rs. 1930 crore through deposits from public.
18 comments:
Although the rewards look very agreeable there are also inherent risks of getting a fixed deposit from a company that needs it to cover short term debts. It would seem that the risk of having cash flow problems is quite great.
Is it better to go for Tax saving FD's or for Tata Motor's FD ?
Tax saving FD will save tax of 30% on the amount Invested. Interest is taxable in both cases. So effective Interest yield will be higher in the case of Tax saving FD.
What is your view ?
Which are the other good companies offering Fixed deposits ?
HDFC, JaiPrakash Industries and Hudco are among companies accepting deposits...not sure though how secure it is to invest in these
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Tax Saving Mutual funds are still the best investment options with a three year timeframe.
What is the difference between Tax saving FD and Bank FD ? Is there any difference in interest rates of these FD's ?
Bad Credit - I agree with you that having an FD with a company with a liquidity issue might be an issue, However, any company which raises money from banks or public does so when it doesn't find enough liquidity within its own resources. Further , an FD with TATA's would not raise alarm bells since they have a pretty good brand name and goodwill in the industry. But obviously , Company FD's are any day riskier than Bank FD's and hence carry higher interest rates too.
If you are going for an FD for Tax planning puposes, TATA motors FD would not qualify for the same. Hence, you would need to opt for Bank FD's. yes, from tax saving perspective the Bank FD's are anyday better than company FD's.
Hapi - I saw your blog . It's indeed useful for bloggers trying to enhance their blogs. I tried using favicon based on your article, but somehow it doesn't works. Keep up your good work
Komal - Tax saving FD's have a lock in period. Have comparatively lower interest rates but you get benefit of Sec 80 C on the FD amount. Interest is taxable in both cases.
Anonymous on MF's - Yes, I am on your side on this. ELSS looks a good starting point at current levels from Tax saving perspective.
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