In this article [show]

1. Corporate Fixed Deposits Interest Rates In India
2. Corporate Interest Rate
3. Fixed Deposit India
4. Corporate Fixed Deposits
5. Corporate Fixed Deposits India

Investing in Corporate Fixed Deposits

Not happy with the interest on bank fixed deposits? You’d prefer to invest in a fixed deposit with a company and earn the incremental 2-3% return. It must be noted that any financial instrument that has a higher expected return also comes with higher risks. It is important to understand all these risks and make sure they fit your profile before making the investment. In this article we will run you some of the important things to be taken care of before you lend your hard-earned money to a company.

$prxqw 5v 5dwh ri,qwhuhvw s d $prxqw 5v 5dwh ri,qwhuhvw s d $prxqw 5v 5dwh ri,qwhuhvw s d $prxqw 5v 5dwh ri,qwhuhvw s d. Company Fixed Deposit is the amount deposited by investors for a fixed period of time with a company which offers a fixed rate of return. These deposits are accepted by manufacturing companies.

Corporate Fixed Deposits / Company Fixed Deposits. We offer a range of Corporate Fixed Deposits of varying tenures, interest rates & institutions to suit your investment needs. Company fixed deposits are better than bank fixed deposits as they offer interest rates, which are significantly higher than bank fixed deposit interest rates.

What is a Corporate Fixed Deposit?

Corporate deposits or company fixed deposits are term deposits wherein you put your money for a fixed tenure at a fixed rate of interest. They are offered by non-banking financial companies (NBFCs).

Corporate deposits work exactly like bank fixed deposits. The difference being that the bank deposits are issued by banks, whereas the corporate deposits are issued by companies – both public and private. You would lend money to the company for a decided tenure at a fixed rate of interest. The interest may be payable quarterly, semi-annually or annually (non-cumulative) or along with the principal amount at maturity (cumulative).

Understanding the Risks in a Corporate Fixed Deposit

Default Risk

One must understand that in case of bankruptcy of a company there is a hierarchy by which the creditors get paid the residual amount. The government dues, such as any taxes & fees are paid first. Of the leftover, secured loans (loans received against a collateral) are paid next. After this, unsecured loans are paid if there are any funds left.

Since corporate fixed deposits are unsecured in nature, they carry a higher interest rate. In other words, if the borrowing company is to default, you as a lender do not have any asset from the borrower which you can sell to make up your loss. It is because of this extra risk that they offer a higher interest rate.

Corporate Fixed Deposits Interest Rates In India

Read Also: Loan Against Fixed Deposit (FD): Eligibility, Interest Rate, Documents, Online Process

There have been various instances in the last couple of years where companies have gone into a financial tailspin. Their financial health has deteriorated to a level, where they have not been able to repay the investors on maturity. One such case, where the investors could presumably lose a lot of money is Dewan Housing Finance Ltd. (DHFL).

Credit: LiveMint.com - spelling out the plight of retail FD investors

What’s worse is that the maximum investors in such FDs are individuals who need a regular fixed income, such as retired individuals. These are people who cannot afford to invest in riskier asset classes such as equity as their risk appetite is low.

Investment Security

One must also note that corporate fixed deposits are not regulated by RBI regulations. Instead these corporate deposits are governed by provisions 73 to 76A of the Companies Act, 2013. Which means they are not covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC), which guarantees up to Rs. 1 lakh (Rs. 5 lakhs from FY 2020-21) on deposits with banks.

Pre-Closure of Deposit

Most corporate fixed deposits do not permit pre-mature closure before 6 months. Even if they do allow this, normally the penalties involved are very high. Not only the penalties, the paperwork involved is tedious and cumbersome. On the other hand, in case of bank deposits, though there are penalties involved, they are generally lower, and the procedure is much simpler.

Credit Rating

Even though the credit rating agencies have not done a great job in the previous few years, with AAA rated companies going into default, credit rating is always a good starting point. One could filter out any low rated companies.

Track Record of Company

It is always a good idea to study the company’s business and operations. One must make the effort to do some research regarding the fundamentals of the company and particularly check the debt levels that the company has. If the company has too much loan on its books, and most of its earnings is going to payment of interest, it should be a negative signal for the investor.

Diversify your funds

As the age old saying goes – ‘Never put all your eggs in one basket’. Even if an investor does decide to invest in the fixed deposit of a company, one must be careful not too commit too big a fund into the company. God forbidding, even if the company is to default, your other investments can always bail you out.

Tax Deduction at Source

The company would deduct a 10% TDS on interests over Rs. 5,000 in a financial year. In case the investor falls in the nil or zero tax bracket, he must submit a duly completed Form 15H in duplicate every financial year to avoid TDS deduction.

Study the Application Form

The application form for a corporate fixed deposit generally contains fine prints regarding rules, such as penalties and permission for pre-mature withdrawal. Also, the company’s financials such as profits for the previous 3 years are printed on the application form.

Nominee Details

At the time of applying for a fixed deposit an investor must fill in the nominee details. In case of the unfortunate death of the applicant, it makes the process much easier for the nominee to claim the withdrawal receipts.

Conclusion

All-in-all, corporate fixed deposits are a good product to be able to get a better return than a bank fixed deposit. However, while investing one must take care of the points mentioned above. Corporate fixed deposits in stable companies is a good option for investors who have a low risk appetite and cannot bear or afford the volatility of an asset class like equity.

More Information:

In India, Fixed Deposits have always been the favourite type of investment. From saving for a trip to saving for retirement, they have been the all-purpose solution.

Now, despite all the favoritism, Fixed Deposits are not the right fit for long term goals. But, if the goal is for a short term or a goal that can’t wait, FDs can be a good option in such cases. And, that is simply because it comes with the assurance of a guaranteed return.

However, if you are worried about falling interest rates of bank Fixed Deposits, you have an option of corporate Fixed Deposits.

In this blog, we will elaborate on what is a corporate FD, its similarities with bank FDs and its advantages. We will also talk about the risks involved with corporate FDs.

First, let’s understand what a corporate Fixed Deposit is

Like banks, several companies and NBFCs are also allowed to collect deposits for a fixed tenure at a prescribed interest rate. Such deposits are called corporate Fixed Deposits. Similar to banks they come with the assurance of guaranteed returns and flexibility of choosing the tenure. Plus, corporate FDs provide a higher interest rate than bank FDs.

Now let’s look at the similarities corporate FDs have with bank Fixed Deposits:

Number 1: Corporate Fixed Deposits provide a guaranteed return

One of the biggest advantages of investing in corporate Fixed Deposits is, like bank Fixed Deposits they also provide the assurance of a guaranteed return. Say you have invested Rs 1 lakh in a corporate Fixed Deposits and the concerned NBFC/corporate promises you to pay a 7 percent interest per annum. Then, no matter how the markets move or how the interest rates fluctuate, at the end of the year, you will receive Rs 1.07 lakh as promised.

Plus, at the time of investment itself, you get to know the exact amount that you will receive at maturity. This one big advantage helps you make your future financial plans more confidently.

Number 2: Higher rates for senior citizens

Like most bank deposits, most corporate Fixed Deposits offer a little higher interest rate for senior citizens. For example, if a non-senior citizen earns a 6 percent return from a corporate Fixed Deposit, usually a senior citizen will get a 6+ percent on the same investment.

For senior citizens who are retired and depend on Fixed Deposit returns for income, this is an added advantage.

Number 3: Flexibility of choosing the tenure:

The tenure of a corporate Fixed Deposit usually ranges between one to five years. And you have the flexibility to choose any duration within that range. So if your goal is one year away, you can invest for one year; if it’s 2.5 years away, you can choose your tenure accordingly. However, the interest rate will vary accordingly, i.e. higher the tenure, the higher is the interest rate.

Now that we have looked at the similarities between corporate Fixed Deposits and bank FDs, let’s look at the advantages it has over bank Fixed Deposits.

Here are the 2 advantages of corporate Fixed Deposits over bank Fixed Deposits

#1: Interest rates for corporate FDs are higher than bank FDs:

Corporate Fixed Deposits offer higher interest rates than most banks’ Fixed Deposits. For example, currently SBI, India’s biggest public sector bank, is providing interest rates of 5.1 to 5.7 percent for Fixed Deposits of various duration between one to five years. Meanwhile, the Fixed Deposit by Bajaj Finserv which is available on ETMONEY, offers returns up to 7.2 percent per annum for similar durations.

Let’s look at the table below to understand the difference in interest rates between the two.

#2: The penalty period for early withdrawal is lower in the case of corporate FDs:

As per RBI guidelines, all Fixed Deposits need to have a minimum penalty period of 3 months. That is, if you withdraw your money within the first three months, you will have to pay a penalty for early withdrawal. Beyond that, it is up to the bank/NBFC/company to decide for how long its penalty period would be. The penalty period for Corporate FDs is usually lower than Bank FDs. For example, in the case of SBI you have to pay a penalty if you decide to withdraw your money anytime before the maturity period. Meanwhile, for FDs in ETMONEY, the penalty period for early withdrawal is only 3 months.

Now that you know the benefits, let’s look at the concern people have around safety aspect of corporate FDs

Do corporate FDs carry higher risk?

When it comes to investing in corporate FDs, a lot of people are scared that since these deposits are unsecured one might lose money if the company defaults. It is important to note here, all NBFC/companies that want to collect deposits have to adhere to stringent regulations and guidelines laid down by the RBI/Ministry of Corporate Affairs (MCA). Hence, though there are more than 10,000 NBFC in India, only a handful of them can accept deposits from the public. Such measures ensure that the risk is minimum for the investors when it comes to putting money into corporate Fixed Deposits.

Let’s look at these regulations and guidelines in further detail.

Which companies/NBFC can collect deposits?

Corporate Interest Rate

RBI is extremely cautious when it comes to allowing NBFCs to collect deposits from the public. First of all, being registered as an NBFC with RBI is not enough, they have to have a legitimate license to accept deposits. Then, the financial assets that the company is managing has to be at least Rs 5,000 crore. Apart from these NBFCs also have to follow a few other guidelines for accepting deposits from the public. And, here they are:

The RBI guidelines that NBFCs have to follow to launch Fixed Deposits

1. The tenure of Fixed Deposits has to be a minimum of one year and a maximum of five years.
   
2. The total deposit that an NBFC can collect can be up to a permissible limit, which again varies for different NBFCs
3. The interest rate for the Fixed Deposits cannot be more than the rate prescribed by the RBI, which is revised from time to time
4. All relevant information regarding the Fixed Deposit has to be disclosed to the RBI
5. They cannot offer any extra benefits or gifts to the depositor

Fixed Deposit India

Meanwhile, housing finance companies with specific permits or licenses to collect deposits from the Ministry of Corporate Affairs (MCA) can only accept deposits from the public but up to a certain limit. It is a federal offense to collect deposits from the public without a necessary license from the RBI or MCA.

But that’s not all. NBFC/companies have to maintain a minimum credit rating for collecting deposits

Rating agencies like CRISIL, and ICRA give ratings to companies that can collect deposits from the public. These agencies look at the track record of the company, whether the interest rate and the repayment schedules are revealed to the investors while collecting the deposits, etc. Depending on how strong they are on each criterion, the companies are given ratings like AAA, AA, BBB, and so on. AAA is the highest rating and indicates the company has a solid balance sheet. The NBFC/companies have to maintain a minimum BBB rating to collect deposits from the public.

For example, Bajaj Finance and HDFC are two AAA companies that can collect deposits from the public. And over the years, their Fixed Deposit investors received their payments on time and they always had clarity about the interest rates and the payment schedule. So, to minimize the risk of default, one should stick to AAA-rated corporate Fixed Deposits.

These measures by RBI and MCA ensure that your investments are safe when it comes to investing in corporate Fixed Deposits.

Bottom Line:

Corporate Fixed Deposits

Corporate Fixed Deposits India

So if you have a goal that needs to be achieved within 1 to 5 years, invest in a corporate Fixed Deposit. It provides you the protection of a fixed-income instrument and also provides a higher return than bank FDs.