MUMBAI: Investors rushing to put their money into high-yielding fixed deposits before interest rates trend downwards would be prudent to think twice. About 22 companies, including Jindal Cotex Micro Technologies , Helios & Matheson and Asian Electronics, have either defaulted or delayed repayments over the past few months, according to data from market participants. E-mails sent to the companies either bounced back or failed to elicit any response.These fixed deposit schemes were launched some years ago, when credit ratings were not mandatory, except for non-banking finance companies. “Retired people have invested as much as Rs 15-20 lakh expecting a few percentage points of higher returns,” said Anup Bhaiya, MD & CEO of Money Honey Financial Services. “For some manufacturing companies, the anticipated growth did not happen in the last few years, while a prolonged high-interest rate regime eats into their (profit) margins. Banks, too, appear to be tight when it comes to lending to those companies.”

These schemes offered interest rates as high as 12.5%, mostly on FDs with maturities of one to three years. The total outstanding issuances would be Rs 2,500-3,000 crore. Unitech accepted Rs 600 crore of fixed deposits, while others such as Tricom India and Lyka Labs may have collected Rs 50-100 crore each.

The government recently strengthened provisions in the law to require companies accepting deposits to obtain ratings from a credit rating agency and limit issuances in proportion to their net worth and profitability. “The New Companies Act 2013 making mandatory the ratings for companies accepting public deposits is a welcome step,” said Sudip Sural, senior director of Crisil Ratings.“The act prescribes this to be a necessity not only at the time of invitation of deposits but also during the tenure of the deposits.” The provision ensures that an additional, independent credible opinion is available to fixed deposit investors. Crisil sees this as another step towards developing the debt market and making it function better.The new Act also required companies to repay deposits within a year of the new law coming into force, regardless of the maturity period. Many firms have appealed to the Company Law Board, pleading their inability to comply with this provision, according to a CLB source. Some of these cases will soon come up for hearing in the CLB.“In the greed of higher rates, some retail investors do commit mistakes by investing in corporate deposits of companies without knowing the credentials,” said Ajay Manglunia, senior vice-president at Edelweiss Securities. “People who market these products also get a fair share of commissions by luring customers. One should not invest in corporate deposit schemes blindly without checking the credit quality and rating.”Independent financial advisors normally recommend investments in corporate fixed deposit schemes rated ‘AA’ and above, such as those offered by Shriram Transport Finance, Mahindra Finance, HDFC, DHFL and Bajaj Finance, which have so far never defaulted.