Everything You Need to Know About Corporate Fixed Deposit

What is a Corporate FD?

Corporate Fixed Deposits, also known as Company Fixed Deposits, are a type of savings product offered by Non-Banking Financial Institutions (NBFIs). The interest rates on these deposits are often greater than the interest rates on bank fixed deposits.

If investors do not want to participate in a dangerous asset class, they can invest in corporate or firm fixed deposits. It’s crucial to look at the credit ratings of these NBFCs, which are supplied by CRISIL, ICRA, and CARE. As a result, you must invest in organizations that have sufficient creditworthiness. This will aid the investor in assessing the NBFC’s stability. Furthermore, unlike an ordinary fixed deposit, the firm fixed deposit is not covered by the DICGC, which should be taken into account by the investors.

Features of a Corporate FD

The features of the corporate fixed deposit are the following:

• The fixed deposit can be quickly liquidated depending on the company’s terms and conditions.
• ICRA and CRISIL credit ratings can be used to check these companies’ credit ratings. This aids investors in determining the risk that may be involved.
• These fixed deposits may allow for early withdrawals under specific circumstances.
• It pays a higher rate of interest than bank fixed deposits.
• Once the deposit matures, there are no restrictions on how it can be used.
• In some situations, you will have the option to specify the investment’s term as well as the maturity date.

Who can invest in a Corporate FD?

Investors who are looking to make a short-term investment, such as for a trip abroad. If investors have a long-term investment strategy, mutual funds are a superior choice because they provide better returns over time.

Checking the credit rating of the company issuing the fixed deposit backed by the company’s fundamentals is critical. If the company’s credit rating is poor, investors should exercise extreme caution and consider investing in more reliable securities. Investing in AAA or comparable rated corporate deposits is always a good choice. As a result, the principal and interest are both safe.

How to choose the Best Company Fixed Deposit?

When selecting the best company fixed deposit, keep the following criteria in mind:

Interest Rate

Fixed deposits with an interest rate of less than 7% should be avoided by investors. It’s critical to compare the numerous corporate fixed deposit options and choose the one with the highest interest rate.

Credit rating of the issuer

It is critical to check the lender’s credit rating before starting with the transaction. Investors can use credit ratings provided by organizations such as CRISIL or ICRA for this purpose. This is a significant consideration since companies with lower credit ratings are less appealing as investment opportunities and are more likely to default.

Type of fixed deposit

There are two types of fixed deposits offered by the company: cumulative and non-cumulative fixed deposits. Interest on cumulative fixed deposits is compounded over the investment’s term and paid together with the maturity amount. Investors can get earnings on a monthly, quarterly, semi-annual, or annual basis with non-cumulative deposits.

Cumulative fixed deposits are preferred by investors who don’t require the money until the conclusion of the term. The non-cumulative fixed deposit, on the other hand, is perfect for someone who requires a regular payout, such as a retiree.

Simple Application Process

In today’s era of digitization, avoiding the digital process that every firm pursues has become unavoidable. While some businesses have successfully implemented this, others are still grappling with the issue. It is critical to select a corporate partner with whom the investor is at ease. In some circumstances, the investor will still be required to visit the branch. This is more of a personal preference, as some individuals like to do things the old-fashioned way.

Who should invest in a Corporate FD or a Company FD?

• Corporate fixed deposits offer a better rate of return than ordinary fixed deposits, but they are not suited for investors in higher tax brackets. Debt funds may be a better option if you are subject to a higher slab rate.
• Corporate fixed deposits are a viable option for investors that have a short-term investing aim and do not wish to select riskier solutions.
• Investors should only invest in corporate fixed deposits that have received a “stable” rating from credit rating agencies like CRISIL and ICRA. As a result, the risk taken by investors is reduced. Furthermore, before investing, investors should conduct a thorough investigation of the company.