The most common instrument of investing in India is the fixed deposit. Similar to banks, the RBI allows certain corporations and NBFCs to receive deposits with a set interest rate and term. These are referred to as Company or Corporate Fixed Deposits. Yes, you heard right, many Corporate businesses offer the FD facility just like banks do. In this article, we will see the benefits of corporate FDs, then you can decide whether to invest in them or not.
First, what is Corporate FD?
It is a debt instrument, similar to a bank fixed deposit, often known as a company term deposit. It is issued by a financial institution, a housing finance business, or another NBFC. This is a more effective technique for companies to raise money from the general public. Typically, a number of rating organisations, including ICRA, CARE, CRISIL, and others, assess these deposits according to their reliability.
NBFCs/HFCs provide depositors with a range of interest pay-out alternatives from which they can select in accordance with their needs. These include options for monthly, quarterly, half-yearly, and annual payouts. An alternative is the cumulative FD option, which allows depositors to benefit from compounding by having the interest component reinvested.
Though they offer higher interest rates than bank FDs, corporate fixed deposits (FDs) are riskier than bank FDs because they are not protected by the deposit insurance scheme offered by DICGC, a subsidiary of the RBI.
What are the benefits of corporate FD?
The best feature of company FDs is the high-interest rate. You receive a higher interest rate on a company FD than a bank FD. Moreover, when it comes to paying interest, there are numerous possibilities. There are options for 1, 3, 6, and 12 months, for example. Almost all business-autonomous agencies, including ICRA, CRISIL, and CARE, rate FDs. Investors now have the chance to purchase FDs with higher ratings.
How to choose the right FD?
Multiple companies provide fixed deposits. They have a credit rating that was given to them by organisations like CRISIL. You can decide whether to invest in this firm using this rating. The amount of interest you will receive from each FD is something else to take in mind.
Before investing in corporate FDs, you must know that the risk and interest both are high in the company’s FD. So, you should make your decision based on your risk appetite. These FDs are, however, safer than equity investment.