Fixed Deposits (FDs) are low-risk money-market instruments and offer several benefits, including guaranteed returns and flexible tenor. loans facility against an FD. An investor looking for a balanced investment portfolio can find a number of banks and NBFCs offering FDs in India.
As an investor, you may be worried about declining FD interest rates. Here is the solution, you have an option of corporate/company/NBFC FDs. Corporate FD rates are higher than bank FDs. Investors seeking to avail greater returns while ensuring the greatest capital protection can open a corporate FD account. Let us understand corporate FDs and find the reasons behind considering corporate FDs to gain better returns.
What are Corporate Fixed Deposits?
Fixed deposits offered by companies and NBFCs (Non-Banking Financial Companies) are popular among investors as corporate or company deposits. Corporate FDs are similar to bank FDs in terms of assured returns, flexible tenor. What makes corporate FDs an attractive investment is that they offer higher interest rates than bank FDs. NBFCs/companies issuing FDs adhere to stringent regulations laid by the Reserve Bank of India (RBI)/Ministry of Corporate Affairs (MCA). All relevant information regarding the corporate FDs has to be disclosed to the RBI.
What Makes it a Preferred Investment Option?
Following are the features and benefits of corporate FDs that benefit investors:
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Safest investment option
FDs are considered amongst the safest investment options with ratings from leading rating agencies like CRISIL, CARE, and ICRA. The minimum rating is BBB (above investment grade). If you are an individual hesitant to invest in the capital market due to uncertainty and fluctuations, an FD is for you, intended for wealth creation and predictable cash flows in the longer run.
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Assured and greater payoffs
No matter how much the inflation and how uncertain market situations are, you will get the benefit of assured returns irrespective of any change in the FD rates in the interim. Once you have invested funds at a specific rate, you will continue to receive the interest on that rate till maturity. As mentioned, corporate FDs offer higher interest rates than bank FDs and post office FDs. You can deploy your funds here to make higher returns.
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Additional interest rate benefits
You can find a financial institution offering additional incentives to depositors. Generally, these incentives are for online investing and renewals. Depositors’ income increases slightly with such benefits.
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An investment for everyone
All individuals, Non-resident Indians (NRIs), and senior citizens can invest in Corporate FDs. Rules for NRI investors may vary by the financial institution.
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Higher interest rates for senior citizen FDs
Senior citizens’ FDs offer the benefit of higher interest rates that support their livelihood further. NBFCs add an extra interest rate to FDs in the names of senior citizens.
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Loan against FD
Financial institutions can provide a loan against FD to help you to meet your urgent financial needs.
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Periodic interest payouts
Corporate FDs can be Cumulative or Non-cumulative. A non-cumulative FD allows depositors to opt for periodic interest payments. You can choose from monthly, bi-monthly, half-yearly, or annual payouts as per your requirement. It is an attractive feature for dependents on their investments, like senior citizens.
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Flexible tenor
Corporate FDs offer a flexible tenor to make deposits. Depositors can choose from 12 – 60 months that suits best to meet your financial goals.
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Fixed deposit calculator
Depositors can utilize the online FD calculator provided by the NBFC to calculate the interest and maturity value of an FD even before investing their funds.
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Lower penalty period
The penalty period for early corporate FD withdrawal is lower as compared to Bank FD. RBI does not permit the withdrawal of an FD in the initial three months of the tenor. If you do so, you will be levied a penalty for early withdrawal. You will get an interest rate that is applicable for the reduced tenure.
The ease of investing is also one of the reasons for favoritism among investors. With these benefits, you may have got the idea of how corporate FDs help you in wealth accumulation. Let us ponder moreover these points.
Corporate FDs over Bank FDs for Wealth Accumulation
For example, if you are a senior citizen investing 20 lakhs for 3 years in October 2021. Here is the calculation for a corporate cumulative FD and a bank cumulative FD:
Bajaj Finance FD:
| Interest rate | 6.75% |
| Interest payout | Rs. 4,32,953 |
| Maturity by | Oct 2024 |
| Maturity amount | Rs. 24,32,953 |
Bank FD:
| Interest rate | 4.50% |
| Interest payout | Rs. 2,87,349 |
| Maturity by | Oct 2024 |
| Maturity amount | Rs. 22,87,349 |
There is a clear difference in the maturity amount that you will receive on the maturity date.
1. You will enjoy a higher interest rate on corporate FDs than bank FDs. If you want to accumulate wealth, make sure you choose a cumulative fixed deposit to invest your funds where the interest is compounded annually.
2. What you need to consider is, higher the principal amount, and longer the tenor, higher the interest rate, the higher the returns. You can invest as high as one crore in a corporate FD. This limit may vary by FD issuers.
3. With a senior citizen corporate FD, you can earn a 25-30 basis points higher interest rate than the rate going for regular investors. You can create an FD in the name of senior citizens above the age of 60 years in your family to make extra returns.
4. The tax applicable on your interest from corporate FD is according to your income tax slab. If it exceeds Rs 5,000 in a financial year, it is taxable. You can take tax advantage, if the total taxable income of a senior citizen, who is an Indian resident, is Nil, they can thus claim the TDS waiver via Form 15G or 15H.
5. You can create an online FD account to earn an additional interest rate on your FD. A slightly high-interest rate may impact your returns with a compound effect significantly. NBFCs facilitate you with an easy online route to open an FD account.
6. To maximize your returns, you can diversify your investment in Corporate FDs across multiple companies.
The NBFC/companies are regulated under the RBI guidelines to maintain a minimum credit rating on the basis of the overall financial health to collect deposits from the public. Do not let default risk skepticism keep you away from increasing returns on corporate fixed deposits. There are many other measures to detect deterioration in a company’s financial health than credit ratings.
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