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  • Category: Investments

    Can we maintain a company with interest rate from fixed deposit?


    Wondering if one can maintain a company based on interest earned from deposits> Looking out for answers here? Find advice from experts on this ISC Ask Experts page.

    Please explain me will this method work or is there any risk in raising fund by this method.
    This method works for who wants less amount of money to start a company.
    Investor is not lossing a single amount.It will take some years to give back invested money to investor. Only we have to see inflation rate thats what article I read says.
    First we have to take 40lakh from investor and we put 35 lakh of it in fixed deposit. The remaining 5 lakhs we use to start our business. We will get 5 lakh from the interest of fixed deposit in 3 or 4 years. If business fails or succeeds entire 40 lakh is returned to investors in 3 or 4 years. If business succeeds big share or profit of company is given to investorbecause hence he gave 40 lakh.This is what i saw in google article.investor not lossing any money.
    Will this work out?
  • Answers

    5 Answers found.
  • This type of method can be adopted for a small business but in any business the profit margins are generally of the order of at most 20-30% and the profit can be of the order of say 25% of Rs 5 lakh which equals to Rs 1.25 lakh only. Now, out of this profit amount certain appropriations are to be done and one of the most important appropriations will be the share of the profits to be given to the investor as an apparent dividend. After doing those appropriations additional funds might be required for continuing the business or for expansion of the business. From where those funds will come? If one uses the money out of the interest of Rs 35 lakhs then liability for return would further increase. Even if one can manage the small business for 5-6 years then a time will come when the investment is to be returned and that could be a big problem. The 35 lakh part is alright but what about the 5 lakh part and its interest that the investor will ask.

    The viable option will be to go for the business in a big way by using the whole amount of Rs 40 lakh and then when the business establishes then start giving handsome return to the investor. The investor should also understand that there are hidden risks in any business and it is not necessary that all the businesses will flourish. Investors generally put their money in reputed and viable businesses and not in risky ventures.

    Knowledge is power.

  • When someone invests huge amount in business he wants big profit also. Why anybody will give 40 lac rupees to let you invest 35 lac in fixed deposit and rest five lac for doing business, what the money lender will get from you. ? Obviously, he will get your property , land, car, jewellery and other assets of equal value in his possession as guarantee. He will also charge big amount of interest on a given loan. The investor will not suffer any loss however you will lose all your property.
    Anyways, go ahead and inquire details but don't mortgage your property to him at any cost and also see interest rate. They may say it's only 5% but they will get your sign on 25%.

  • 1. An investor will give money to you in anticipation of some returns from his investment. After 5 years if you give him the same 40 lakhs how he will get satisfied. He expects at least bank interest. If you take this as 7%. The interest will be at least 14 lakhs and the total will be 54 lakhs.
    2. You have to survive on the business. That means you will get profit in the business for your living also. Is it possible to get that returns from Rs. 5 lakhs? So what type of business will yield that much amount?
    3. These days people are doing day trading. A person will be sitting before his computer and he will be watching the BSE or NSE. He may be purchasing and selling the shares within the day and finally, by the end of the day, he is making some business. But for this one should know about trading. Otherwise, the chances of losing money will be high. I don't know whether the article you read may be referring to such business.
    4. But it is a very risky proposition. Unless otherwise, one is having a full understanding of the share market and trading practices one should not venture into that.
    5. It is better to take a loan and invest that completely in your business so that the returns will be more and you may be able to return the money without any problem.
    6. You should be very careful in selecting the business you want to do and sturdy the pros and cons well and then decide.

    drrao
    always confident

  • You are taking around about way to touch your nose which right in front and easy to touch straight.

    Why should you take 40 lakhs when you can take a straight amount of 5 lakhs with a condition to repay after a certain period ?
    Now if you are a genuine entrepreneur,then the best is to approach a nearby bank(preferably where you have got your account now). You have to convince them with your project and other background details. There is Mudra Loan or other loan facilities available for genuine entrepreneurs,even without giving any collateral security.

    But if this question is just for an academic discussion, then , I have to say that this is just a foolish proposal and you will not get anyone to invest unless they are very close to you and ready to give their money to you, and do not mind the risk therein. Even then they will give the needed 5 lakhs and invest the other 35 lakhs in their own name as fixed deposit if the interest rate is more than what they get now.

  • While considering your submission, I am not in favour of your blocking a large amount of money ( Rs 35 lacks ) for the fixed deposit in a bank and keeping Rs 5 lacks with your possession for business purpose.The following points may be seen prior to taking such an initiative -
    1) The maximum rate of interest at the present moment for the fixed deposits of the banks for the time tenure for four years is 6.0 percent but the present rate of inflation being 7.0 percent. In that way there is erosion of your invested capital in the fixed deposit of a bank.
    2) In case, the deposit is made in the fixed deposit of some reputed companies such as Bajaj Capital, Larsen Turbo, Muthoot Finance etc, interest component could be somewhat higher than the present bank rates, but the money may not be secured considering inherent risks of such investments. You may even loose your money in the future ahead.
    3) You will have to calculate the expenses to run your business smoothly and this would require expenses on different fronts such as electricity bill for the establishment, salaries of the staffs, tax liabilities, expenses on GST depending upon type of business, maintaining a contingency fund, some money to be paid to lawyers in case of litigation etc. if you sum up the entire expenses, it may even exceed Rs 5 lacks which you want to keep under possession.
    4) In order to win the heart of investors, you need to pay out some nice dividends at the end of financial year. This aspect has to be taken care of if money has been raised through the public after listing your company.


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