Real Estate Company Deposits: Beware of It

In India, past one year share market was very volatility, a lot of investors are looking at deposits. While FDs (Fixed Deposits) remain the trusted financial product., there are some who look at CDs (Company Deposits), too.

 Is it  insure?

Compare to FDs, CDs give a specified rate of interest over a fixed tenor & usually give 1-2% higher interest than FDs. Same time, a higher interest rate comes higher risk. In Bank FDs, Rs,1 lakh is insured by the bank.  CDs does not insured, carry company risk. That is these are unsecured deposits

Recently many CD's floated in the Indian market are those from real estate companies, many of them entring into this product for the first time. CDs in themselves are seen as risky instruments and CDs from real estate companies raise more red flags given their drubbing in the 2008 downturn in view of the ongoing volatility.
Unitech , Parsvnath Developer, Panchsheel Developers had launched CDs in the past. Ansal Housing and Construction Ltd has recently launched a CD scheme for retail investors.

For Indian  real estate companies, these schemes do not form a significant portion of their total fund raised. Same time for small investors, it is important to understand that the real estate sector itself is not going through a good phase.

Many problems such as rising cost of raw materials, cost of labour, rate of interest, huge debt are  limited access to capital for construction have put real estate firms under pressure.Most real estate firms have huge debts. The real estate sector's growth in the coming months will largely depend on the delivery of projects. However, with delay in project approvals, shortage of labour, the real estate sector will have a tough time delivering the ongoing and announced projects. This will hit the firms revenue in the long term. Company CD's are also long term products (3-5-10 Years)

 Rating of CDs
 
If you want to invest in Company Deposits for more rate of interest, look only stable, debt and loan repayment capacity real estate company.
Also small investors should consider rating of CDs like  AAA or AA By CARE/ ICRA/CRISIL.“
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