Looking For Investment Instruments With Higher ROI and Minimal Risk?

It is a known fact that returns obtained by investing one's hard earned money in banks is very marginal and most investors like you and me invest only under the pretext of perceived investment security and the availability of immediate liquidity. Thus there arose a need to identify investment instruments that would offer higher ROI with minimal risk. This need was addressed by Indian corporates who helped bridge this gap by coming out with Company Fixed Deposits (CFD)which are fixed deposits that basically allows your invested capital to grow at a fixed rate for specific duration of time.

The concept of fixed deposits grew also out of the need of the corporate sector's requirements for raising short term finance, and this was well accepted by the retail investors who were looking out for alternate investing vehicles where they could get superior returns on their investment and also better security for their hard earned money. Thus there was the inception of a symbiotic relationship between the promoters of large corporates who needed capital funding and retail investors who wanted an alternate investment avenue to invest their capital.

Bajaj Capital was the first corporate to bring about the concept of company fixed deposit way back in 1964, when it launched the first ever Company fixed deposit, that being of the Oberoi Group:- East India Hotels Limited. The overwhelming success and acceptance of this company's fixed deposit scheme amongst investors lead to other companies falling in Line and soon we had a plethora of private and public companies accepting deposits from the public in the form of Company Fixed deposits.

It was then that for the first time the general public took interest in the growth of large corporates and vice versa. Fixed Deposits would grow in the following decades in a far more comprehensive and organized form by issuing of share certificates and other investment products whereby the public would be termed as shareholders, and would play a very significant part in the growth of any corporate.

Following the first CFD launch there was a steep growth in the Company Fixed deposit market with the capital invested being over Rs 25000 crore in the following years. Some basic advantages that make CFD'S really popular amongst investors are listed below.

• There is a significant amount of security offered by its non-transferable nature. Thus in case the CFD certificates are stolen, no one can utilize the same and the holder can always procure a copy by applying for the same with the concerned company.

• An investor can and always should screen companies regarding their credentials and thereby he can choose to invest in the company seeing past performance history and perceivable growth opportunity in future.

• The option to nominate also made it very popular amongst the conservative and traditional minded Indian investors.

In spite of company fixed deposits being popular because of the reasons listed above, every investor must make sure that he follows basic guidelines before investing in the same. These include screening companies before investing and even after investing he - should continuously keep a tab of the company's growth parameters.

To aid this decision making by the investor, one may take the guidance of rating reports provided by reputed Credit rating agencies like ICRA, CRISIL & CARE which regularly analyze company fundamentals and balance sheets.

One should always invest in reputable and acknowledged companies which have the repute of regularly paying shareholder's dividends. Such companies generally have a strong liquidity and the risk of them defaulting with investor capital is minimal. Thus the inception of company fixed deposits heralded the beginning of a new era which would see retail Investor and corporate partnership growing together like never before in India.

Disclaimer:

1. Views as are mentioned in the article are personal views of Author and nothing to link with Co., its Director and Employees.

2. All investments are subject to market risk and you need to consult your financial advisor/consultant before investment.

I am a financial enthusiast keen on sharing knowledge on stock market, fixed deposits and mutual fund related content to readers. I am passionate about retail investments hence write eloquently on various investment avenues and instruments.

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Negotiable Instruments

Types of Negotiable Instruments

There are four types of negotiable instruments: drafts, checks, notes, and certificates of deposit. Drafts and checks fall under a classification as "promises to pay". A promissory note is a written promise made by one person (the maker) to another (usually the payee) payable either on demand or at a definite time. A certificate of deposit (CD) is a type of note issued when a party deposits money with a bank, with the bank promising to repay the money, with interest, on a certain date.

Requirements of Negotiability

Before an instrument can be negotiated, it must meet the following requirements:

1) Be in writing.

2) Be signed by the maker or the drawer.

3) Be an unconditional promise or order to pay.

4) State a fixed amount of money.

5) Be payable on demand or at a definite time.

6) Be payable to order or to bearer, unless it is a check.

Liability Associated with Negotiable Instruments

There are two kinds of liability associated with negotiable instruments - signature liability and warranty liability. Those who sign negotiable instruments are potentially liable for payment of the amount stated on the instrument. Makers and acceptors (drawees that promise to pay an instrument when it is presented for payment at a later time) are primarily liable. Drawers and endorsers are secondarily liable only if the instrument is properly and timely presented, the instrument is dishonored, and timely notice of dishonor is given to the secondarily liable party.

Warranty liability extends to both signers and nonsigners. It falls into two categories- transfer of liability and presentment liability. One who transfers an instrument for consideration makes the following warranties to all subsequent transferees and holders who take the instrument in good faith:

1) The transferor is entitled to enforce the instrument.

2) All signatures are authentic and authorized.

3) The instrument has not been altered.

4) The instrument is not subject to a defense or claim of any party that can be asserted against the transferor.

5) The transferor has no knowledge of any insolvency proceedings against the maker, the acceptor, or the drawer of the instrument.

A person who presents an instrument for payment or acceptance makes the following presentment warranties to any other person who in good faith pays or accepts the instrument.

1) The person obtaining payment or acceptance is entitled to enforce the instrument or is authorized to obtain payment or acceptance on behalf of a person who is entitled to enforce the instrument (there are no missing or unauthorized endorsements).

2) The instrument has not been altered.

3) The person obtaining payment or acceptance has no knowledge that the signature of the drawer of the instrument is unauthorized.

It is through negotiable instruments that the world's daily business is transacted. Any business person must be familiar with the basic types of negotiable instruments, their proper transfer, the responsibilities of the parties to such instruments, and factors that may affect their value.

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