Are Debentures & FDs Safe?

What are the chances of default in debentures and fixed deposits? Which is more secure? What is the process of recovery in case a company’s debentures default? From where can we get the information about long-term debenture issues? Please also tell me whom to approach to settle a general insurance claim that is 2-years old?
-R Yadav

Generally, a fixed deposit is unsecured. They are not issued against assets, which is why fixed deposits issued by most companies are regulated. A bank also decides how much it can take on loan through fixed deposits. A bank fixed deposit is relatively more secure because its solvency and liquidity is monitored by RBI. On the other hand, debentures can be secured as well as unsecured. Long-term debentures are usually secured against fixed assets. But there is always a chance that a company might go bankrupt, and there hasn’t been a case where the depositors have got their money easily in such cases. Hence, your only recourse is that you invest only in well-rated companies that have a good reputation. Don’t run behind companies that give you very attractive returns, because they will come with higher risks.

Regarding your insurance claim, approach IRDA and file a complaint with them. The complaint mechanism is transparent and can be done through their website.

This article was originally published on April 10, 2012.