Non Debt Mutual Funds

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Investment is time, energy, or matter spent in the hope of future benefits actualized within a specified date or time frame. Investment has a different meaning in finance from that in economics. In finance, investment is buying or creating an asset with the expectation of capital appreciation, dividends (profit), interest earnings, rents, or some combination of these returns.

Fixed Deposits mobilized by the manufacturing companies are governed by the provision of section 58 A of companies Act 1956. The fixed deposits are mainly of two types viz: Manufacturing company deposits and Non Banking finance Companies deposit. These fixed deposit provide a periodic fixed & committed return on the deposits for the till the maturity period.

Fixed Income Investments

Fixed Deposits mobilized by the manufacturing companies are governed by the provision of section 58 A of companies Act 1956. The fixed deposits are mainly of two types viz: Manufacturing company deposits and Non Banking finance Companies deposit. These fixed deposit provide a periodic fixed & committed return on the deposits for the till the maturity period.

Manufacturing Companies

Manufacturing companies are permitted to mobilize deposits from the public upto 25% of their networth and upto 10% from the shareholders. The deposit period generally ranges between 6 months to 36 months. Manufacturing companies that have sound financials are always preferred over other companies. The interest rates will depend on the market rates and the company’s requirement for the funds. An investor will have an option to get monthly, quarterly, half-yearly or yearly interest and will also have a choice to chose cumulative option under which interest is reinvested and paid on maturity. Following are some of the criteria for choosing a good manufacturing company deposit

  • The company is from a reputed group and should have a minimum track record of 5 years in their line of business.
  • Should be a listed and traded company or a government company.
  • The company should have not defaulted on their deposits in the past.
  • The company should have a sound management and should offer reasonable returns that are comparable with bank return
  • The Company Should have a decent dividend track record
  • The Company's debt to equity should be well within the acceptable levels

Non Banking Finance Companies

Non Banking finance companies basic activity is leasing and financing and they borrow from public as deposits for the purpose of lending activities. Their profits are from the interest spread they earn from the financing activities. The Finance company should necessarily have a credit rating from one of the rating agencies for mobilizing deposits. These ratings are assigned by the Rating Agencies like, CRISIL, CARE, ICRA and FITCH, The rating indicates the stability of the company and timely repaying capacity of the company of the principal and interest. The varied rating indicates the degree of the safety to the capital and interest. AAA (pronounced as triple A) is the highest rating assigned and indicates highest safety of the capital and timely repayment of capital and interest. Finance companies can accept deposit between periods 12 months and 60 months and the interest rates are offered according to the market conditions. Currently, these companies offer interest ranging between 8% - 12% with an interest payment option of monthly, quarterly, half-yearly, yearly and on cumulative basis. The deposits are attractive as they offer better than bank deposit rates and provide good service to the investors. Investors also have the option of availing loans against these deposits.

Corporate Deposits are loan arrangements where a specific amount of funds is placed on deposit under the name of the account holder. The money placed on deposit earns a fixed rate of interest, according to the terms and conditions that govern the account. The actual amount of the fixed rate can be influenced by such factors at the type of currency involved in the deposit, the duration set in place for the deposit, and the location where the deposit is made.

Corporate Deposit

Benefits of investing in Company Fixed Deposits

  • High interest.
  • Short-term deposits.
  • Lock-in period is only 6 months.
  • No Income Tax is deducted at source if the interest income is up to Rs 5,000 in one financial year
  • Investment can be spread in more than one company, so that interest from one company does not exceed Rs. 5,000

These are closed ended debt schemes with a fixed maturity date and they invest in debt & money market instruments maturing on or before the date of the maturity of the scheme.

Fixed Maturity Plan


FMPs, are the equivalent of a fixed deposit in a bank, with a little difference. The FMP's returns are only indicated and not 'guaranteed', Since the fund house knows the interest rate that it will earn on its investments, it can provide 'indicative returns' to investors.FMPs are debt schemes, where the corpus is invested in fixed-income securities.

Where do FMP's invest ?

FMPs usually invest in certificate of deposits (CDs), commercial papers (CPs), money market instruments, corporate bonds and sometimes even in bank fixed deposits. Depending on the tenure of the FMP, the fund manager invests in a combination of the above-mentioned instruments of similar maturity. Say if the FMP is for a year, then the fund manager invests in paper maturing in one year.

Tenure of FMPs'

TThe tenure can be of different maturities, from one month to three years. They are closed-ended in nature, which means that once the NFO (new fund offer) closes, the scheme cannot accept any further investment.

These FMP NFOs are generally open for 2 to 3 days and are marketed to corporates and well-heeled, high net-worth individuals. Nevertheless, the minimum investment is usually Rs 5,000 and so a retail investor can comfortably invest too.

FMP's are investment options for sure if you want to park your money for short term. They are more tax efficient and give better post-tax returns. Though returns are not 100% guaranteed, they are almost risk free (remember almost).

These bonds are exemted fro income tax and have attractive intrest rate. Since compnay have better credit rating they have better safety on returns, also option of holding bonds in "Demat Form" makes your investment easy to handle and monitor.

54 EC Bonds

Capital Gain be saved Under Sec 54EC or Sec 54F, if the land or property sold is non agriculture. We deal in such bonds which qualify for Sec 54EC Bonds.

  • Tax can be saved under Section 54 EC by investing in bonds
  • Tax can be saved under Section 54 F by investment in New residential house

To claim Section 54 EC following conditions is to be satisfied.

  • Long Term Capital Asset Long term assets means any capital asset held by assessee for more than 3 Years.

  • If assesee has sold the Long term capital asset during the previous year and made a long term capital gain then he can invest money of capital gain in Capital gain bonds and can save tax on long term capital gain.

  • Assessee here means all type of assessees,like individual,firm company etc.

  • Amount to be invested in bonds is only capital gain not net consideration received on sale of long term capital asset

  • Amount exempted under this section will be amount of capital gain or amount invested in capital gain bond which ever is lower maximum up to 50Lakh(see note below)

  • These Bonds Maturity Period is Three years

  • Capital gain bonds eligible under this section are now can be issued only by REC or NABARD
  • Bonds can not be pledged ,sold transfer before completion of three year from purchase of bonds ,and in case its transferred then amount capital gain exempted on investment in these bonds will be made taxable in that previous year as Long term capital gain .

  • Amount of capital gain should be invested in Capital gain bond within 6 Month from date of transfer/sale of capital asset .

One more good news for you that 50 lakh Limit is for each financial year. As your six month limit is fall in two different Financial years so you can save 50 lakh in fy 2008-09 and 50 lakh in one can save upto maximum of one crore of capital gain u/s 54EC.

A type of debt instrument that is not secured by physical asset or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond in order to secure capital. Like other types of bonds, debentures are documented in an indenture.


Debentures have no collateral. Bond buyers generally purchase debentures based on the belief that the bond issuer is unlikely to default on the repayment. An example of a government debenture would be any government-issued Treasury bond (T-bond) or Treasury bill (T-bill). T-bonds and T-bills are generally considered risk free because governments, at worst, can print off more money or raise taxes to pay these type of debts

A debenture is a document that either creates a debt or acknowledges it, and it is a debt without collateral. In corporate finance, the term is used for a medium- to long-term debt instrument used by large companies to borrow money. In some countries the term is used interchangeably with bond, loan stock or note.

A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company's capital structure, it does not become share capital. Senior debentures get paid before subordinate debentures, and there are varying rates of risk and payoff for these categories.

There are two types of debentures:

  1. Convertible debentures, which are convertible bonds or bonds that can be converted into equity shares of the issuing company after a predetermined period of time. "Convertibility" is a feature that corporations may add to the bonds they issue to make them more attractive to buyers. In other words, it is a special feature that a corporate bond may carry. As a result of the advantage a buyer gets from the ability to convert, convertible bonds typically have lower interest rates than non-convertible corporate bonds.
  2. Non-convertible debentures, which are simply regular debentures, cannot be converted into equity shares of the liable company. They are debentures without the convertibility feature attached to them. As a result, they usually carry higher interest rates than their convertible counterparts.