With stock markets volatile and interest rates rising, fixed deposits by companies seem to be back in favour. The interest rates on offer are typically a few notches above what a bank FD offers.
In fact, some companies like JK Lakshmi Cement have increased interest rates earlier this year to keep the FD engine revved up for a simple reason -- the cost of funds mobilised through this route.
"My weighted average cost of funds through FDs is less than 9 per cent against 10.5-to-11 per cent for bank funds," explains K Gagrani, chief finance officer at JK Lakshmi Cement. Bajaj Capital is currently retailing about 20 such FD schemes from manufacturing firms and government entities.
"FDs may not sound trendy but they make good business sense," agrees the head of financial advisory services at KPMG, Sanjay Aggarwal, "especially when interest rates are going up." This gives companies the opportunity to lock on to low cost funds.
"In a rising interest rate scenario, it always pays to have a fixed rate instrument on my balance sheet," says Kumaraswamy, the vice president-finance at JK Paper, which is also active in this market.
From the investors' point of view, the risk of such FDs is minimal, especially when investing in a well-known, well-rated company, and the returns are higher than the bank yields. Companies offering these schemes include HUDCO, NTPC, SIDBI, Television Eighteen, Escorts, JK Industries, Ceat and Chambal Fertlisers.
More companies are expected to take to this route to meet their capital requirements, and not merely to tide over bad times. "There is an emerging market for these products," says KPMG's Aggarwal.
Do you want to discuss stock tips? Do you know a hot one? Join the Stock Market Investments Discussion Group