Inter-Corporate Investments (ICI): Meaning, Concept, Features, Advantages, Disadvantages & Example
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Meaning and Concept
Inter-Corporate Investments (ICI) refer to the investments made by one company in the securities of another company. These investments may be in the form of shares, debentures, bonds, or other financial instruments issued by another company.
Companies usually make such investments for:
Earning income through dividends or interest.
Strategic control (holding stake in subsidiaries, associates, or joint ventures).
Maintaining business relationships or gaining market advantage.
In India, inter-corporate investments are governed by the Companies Act, 2013, especially Section 186, which lays down limits and compliance requirements.
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Nature of Inter-Corporate Investments
1. They are financial investments made by one company in another.
2. They can be short-term (temporary parking of surplus funds) or long-term (strategic investments).
3. They can be in equity shares, preference shares, debentures, bonds, or mutual funds.
4. They may give the investing company control or significant influence if the shareholding crosses a certain threshold.
5. They are regulated by law to avoid misuse of corporate funds.
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Features of Inter-Corporate Investments
1. Ownership in Another Company – Creates financial or managerial relationships.
2. Two Types – Short-term (trade-related or temporary) and Long-term (strategic).
3. Regulated – Subject to limits under the Companies Act.
4. Risk & Return – Involves market risks but also potential for profits.
5. Strategic Motive – Sometimes done to form alliances, mergers, or takeovers.
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Advantages of Inter-Corporate Investments
For Investing Company
1. Better Utilization of Surplus Funds – Idle funds can earn returns.
2. Strategic Control – Helps in acquisitions, mergers, or forming subsidiaries.
3. Stable Returns – Dividends and interest provide steady income.
4. Business Expansion – Can expand business operations through allied companies.
5. Tax Benefits – Dividends from certain investments may have tax advantages.
For Investee Company
1. Easy Capital Raising – Can raise funds from corporate investors.
2. Reputation Boost – Association with large companies improves credibility.
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Disadvantages of Inter-Corporate Investments
1. Risk of Loss – If the investee company performs poorly, losses occur.
2. Capital Blockage – Money gets locked for long periods in long-term investments.
3. Conflict of Interest – May lead to concentration of control in a few companies.
4. Regulatory Restrictions – Limits under law may restrict free investment.
5. Dependency – Heavy reliance on inter-corporate income is risky.
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Regulatory Aspect (India) – Section 186 of Companies Act, 2013
A company cannot make inter-corporate investments exceeding 60% of its paid-up share capital, free reserves, and securities premium OR 100% of its free reserves and securities premium, whichever is more, without prior approval of shareholders by special resolution.
Certain disclosures and approvals are mandatory to protect shareholders and avoid misuse of funds.
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Examples
Example 1 (General Business Case):
Infosys Ltd. invests ₹500 crores in equity shares of Tech Startup Pvt. Ltd. to gain a strategic edge in AI development.
Infosys earns dividends and also gets managerial influence in the startup.
Example 2 (Real-Life Case in India):
Reliance Industries Ltd. (RIL) has made significant inter-corporate investments in its subsidiaries like Reliance Jio Infocomm and Reliance Retail Ventures.
These investments are not just for financial returns but also for strategic control and expansion.
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✅ In summary:
Inter-corporate investments are financial commitments made by one company in another, either for short-term returns (income) or long-term strategic control (subsidiaries/joint ventures). While they offer good returns and business expansion opportunities, they also carry risks and are subject to legal restrictions.
