In India, bank fixed deposits are the most common type of traditional investment. Almost all Indians have likely made bank FD investments. Bank FD is the most popular and simple investment, both short- and long-term.
On the other hand, fixed deposits are not the ideal option for long-term investments. Although there are other possibilities for short-term investments, bank FDs are a good choice for short-term savings due to the certainty of a return. In addition to bank FD, If you are a conservative investor and you wish to invest in an investment instrument that ensures guaranteed returns, apart from Bank FD, you have an option of corporate Fixed Deposits.
Let’s understand in detail the concept of corporate FD, its advantages & risks involved.
What is a Corporate Fixed Deposit?
Banks provide fixed deposits, as everyone is aware. Similar to this, several corporations and NBFCs (Non-Banking Financial Companies) are permitted to take deposits from members of the public for a predetermined amount of time at a predetermined interest rate. Corporate Fixed Deposits are deposits made by corporations/companies. Investors can select the duration of corporate FD, and the interest rate is guaranteed. Additionally, Corporate FD offers a little higher interest rate than Bank FD.
Features of Corporate Fixed Deposits
Eligibility: All individuals, non-resident Indians (NRI), and senior citizens are eligible to invest in Corporate FD subject to they are above 18 years of age. However, minors can invest as well through the guardian.
Returns: One similarity between Corporate Fixed Deposits and Bank FD is that both options offer a guaranteed (pre-specified) return. Hence, the Investor already knows the exact maturity amount at the beginning of the investment. Further, corporate Fixed Deposits may offer slightly better returns as compared to Bank FDs.
The investor can choose the investment time based on his financial objectives and preferences. Tenure typically lasts one to five years. Please be aware that interest rates will fluctuate based on the length of the investment. A longer tenure increases the likelihood of a higher interest rate.
Corporations offer slightly higher interest rates as compared to bank FD. For example, currently, Bajaj Finance is providing interest rates of 7.00% to 8.50% p.a. for Fixed Deposits of various duration between one to five years. Whereas, the Fixed Deposit by SBI is available with an interest rate from 3.50% to 7.50% p.a. for similar durations.
Further, Banks always charge a penalty for pre-mature withdrawal of FD. However, in most cases, it is 1%. However, in the case of corporate FDs, it is on the lower side.
How to Invest in Corporate Fixed Deposit
Investing in a Corporate Fixed Deposit (FD) is an excellent way to secure higher returns on your savings while enjoying the benefits of fixed income. Here’s a step-by-step guide on how to invest in corporate FDs, along with important considerations regarding corporate fixed deposit interest rates, company fixed deposit rates, and finding the best corporate FD for your investment needs.
1. Research and Select a Reputable Company
Before investing, research various companies that offer corporate FDs. Look for firms with strong reputations and sound financial stability. Check their credit ratings from agencies like CRISIL or ICRA, as companies with higher ratings (AAA or equivalent) are generally safer investments.
2. Compare Corporate FD Rates
Once you have a list of potential companies, compare their corporate FD rates. These rates can vary significantly, often offering interest rates that are 1-3% higher than traditional bank fixed deposits. Understanding the company’s fixed deposit rates will help you maximize your returns.
3. Choose the Right Tenure
Corporate FDs offer flexible tenures ranging from a few months to several years. Choose a tenure that is consistent with your financial objectives and liquidity requirements. Longer tenures typically yield better interest rates.
4. Understand the Terms and Conditions
Carefully read the terms associated with the corporate FD. Pay attention to details such as interest payout frequency (monthly, quarterly, or at maturity), premature withdrawal penalties, and whether the interest is cumulative or non-cumulative.
5. Complete the KYC and Application Process
To invest, you will need to complete Know Your Customer (KYC) requirements, which usually involve submitting identification and address proof. After completing KYC, fill out the application form for the corporate FD, specifying the investment amount and tenure.
6. Fund Your Investment
Ensure your linked bank account has sufficient funds to cover the investment amount. Once you confirm your investment details, proceed with the transaction.
7. Keep Documentation Safe
After your investment is confirmed, you will receive documentation detailing your corporate FD. Keep these records safe for future reference and tax purposes.
The benefit of investing in Corporate FD
Investing in a Corporate Fixed Deposit (Corporate FD) is a great way to earn attractive and stable returns on your savings. One of the key advantages is the higher corporate fixed deposit interest rates compared to traditional bank FDs. Many companies offer competitive company fixed deposit rates, making it an appealing option for investors looking for better returns without significantly increasing risk.
With Corporate FD rates often tailored to outperform standard market offerings, they are ideal for individuals seeking to grow their wealth steadily over time. Moreover, some of the best corporate FDs provide flexible tenures, periodic interest payouts, and high credit ratings, ensuring both security and convenience.
If you’re looking for a safe and rewarding investment option, exploring corporate fixed deposit interest rates can help you find the best opportunities to maximize your returns.
Risk Involved in Investment in Corporate Fixed Deposits:
One must realize that corporate FD carries a little bit more risk than bank FD because it gives larger interest rates.
Default risk is another danger that corporate FD faces. When a company’s financial situation worsens and it becomes more difficult for it to repay principal or interest, this is known as default risk.
However, strict guidelines and terms and conditions set by the RBI and Ministry of Corporate Affairs must be followed by all NBFCs and businesses that take deposits from the general public. As a result, not all Indian NBFCs can take deposits from the general public.
In order to protect the public interest, the RBI exercises caution while allowing NBFCs to take deposits from the general population. In order to do so, NBFC must register with the RBI and obtain a deposit acceptance license. Furthermore, the financial assets that the business is handling must meet RBI requirements.
Relation between Interest Rate & Rating of Company:
Rating agencies often provide a credibility rating to corporates’ and firms’ FDs. ICRA, CARE, CRISIL, and others are examples of credit rating agencies. Rating agencies assign ratings to businesses that can take deposits from the general public.
The company’s track record, financials, assets, and openness with investors are among the ranking factors. Companies receive ratings such as AAA, AA, BBB, and so on based on how well they score in each category.
The company’s strong balance sheet is indicated by its highest grade, AAA, which stands for “Safest Company.” Investing in NBFCs or businesses that maintain a minimum BBB grade is advised.
Please be aware that the interest rate will decrease as the rating rises. In order to make up for the increased risk, organizations with lower ratings offer somewhat higher interest rates.
Some of the Corporate FD/s are mentioned below:
| Company Name | Credit Rating | Interest Rates (p.a.) | Additional interest rate for senior citizen | ||||
| Highest Rate Slab | Applicable tenure | 1-year tenure | 3-year tenure | 5-year tenure | |||
| Shriram Finance* | ICRA – AA+/Stable IND AA+/Stable by India Ratings and Research | 8.47 | 50 months; 5 years | 7.59% | 8.38% | 8.47% | 0.50% |
| Mahindra Finance | CRISIL – AAA/Stable India Ratings – IND AAA/Stable | 8.1 | 3 years; 5 years | 7.50% | 8.10% | 8.10% | 0.10%-0.25% |
| Manipal Housing Finance Syndicate Ltd. | ACUITE – ACUITE A | 8.25 | 1 year; 2 years; 3 years | 8.25% | 8.25% | 7.75% | 0.25% |
| Muthoot Capital Services Limited | CRISIL – A+/Stable | 8.38 | 5 years | 7.21% | 8.07% | 8.38% | 0.50% |
| Bajaj Finance Limited | CRISIL – AAA/Stable ICRA – AAA/Stable | 8.6 | 42 months | 7.60% (FD of up to Rs 25000) 7.40% (FD of above Rs 25,000) | 8.3% (FD of up to Rs 25000) 8.10% (FD of above Rs 25,000) | 8.3% (FD of up to Rs 25000) 8.10% (FD of above Rs 25,000) | 0.25% |
*At Monthly Rests. Additional interest of 0.25% p.a on all renewals, where the deposit is matured. Additional interest of 0.10% p.a. for women depositors.
(Data as on 20th November 2024 – Source: Paisabazaar.com)
Summary:
Even though corporate FD is appealing since it offers greater interest rates, it should be noted that higher interest rates also entail more risk.
You need corporate FDs:
- If you want to invest with guaranteed returns over the short to medium term.
- If you choose to take on more risk than bank-funded investments and less risk than equity mutual funds,
Before investing, remember to review your risk tolerance and the company’s credit rating.