Fixed Deposits System

Basic Concepts

• It is the low cost money available for companies.
• Non banking institutions are allowed by RBI and company's act to accept deposits from general public, employees, shareholders etc. The funds thus collected are to be utilized for manufacturing or trading. Some finance companies are also in the business, which are acting as finance houses based on banking principal.
• Companies, which are registered in India, are only allowed to accept FDs from general public & those, which are not registered, can deposit from directors or employees but not from general public.
• No fixed deposit is secured. I.e. if the company goes into liquidation the amount invested in, is lost. Government through RBI has given various guidelines to prevent this.
• A Company can raise funds up to 25% of the net owned funds from the general public and another 10% from the shareholders, debenture holders and directors. Fixed deposits accepted from employees are treated as deposits from director's quota.
• Minimum period for keeping deposits is 1 year and maximum is 3 years. Maximum rate of interest that can be paid is 16% per anum. Though there are no specific guidelines on minimum rate of interest it is 1% higher than bank rates. Normally 1% more interest rate is given to shareholders.
• Premature closure is possible but the rate of interest will be 1% less than the normal interest rate.
• Interest on FDs is liable for Tax. If the interest amount is more than 25,000/- for the financial year then TDS is must (Tax deduction at source). An individual who's total interest income is taxable but who is not a tax payer, can avoid the tax deduction by filling in the declaration in Form no. 15A to the company.
• Annual returns pertaining to fixed deposits must be submitted to the RBI in prescribed form.
• For inviting the deposits an advertisement must be published with financial details of the company for the last 3 years with names of directors and auditors.
• Proportionate money collected from the scheme should be invested in government owned scheme such as UTI.

Flow

• Advertisement in news papers to call for deposits.
• Distribution of printed forms
• Collecting the forms as per the scheme within stipulated time
• Scrutinizing the forms and categorization of forms as per general public, shareholders and employees.
• Monitoring the monetary transactions i.e. clearance details for Cheques. An entry will be passed in the books of account debiting cash/bank account and crediting FD ledger account on acceptance of deposit.
• Managing FD registers - General register & Approved register
• If the depositor is non-taxpayer then send 15A form to the depositor.
• Periodic interest calculation will be done and interest warrants will be sent to depositors.
• At the time of maturity of deposit disbursement receipt will be sent to depositor to sign and a letter asking whether he wants to renew the deposit. After receiving replay cheques will be drawn for interest up to the date of maturity and the principal amount.

Refer CLD & ERD