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What is Corporate Fixed Deposit
If you are looking at a solid investment portfolio, ensure that it has both debt and equity components to ensure a risk-reward balance. Debt instruments include bonds, debentures, certificates of deposits, debt funds, and Fixed Deposits among others. Debt instruments are considered relatively stable and balance out your equity portfolio.
One of the debt instrument options is a Company Fixed Deposit or a Corporate Fixed Deposit. A Fixed Deposit involves investing a lump sum amount and receiving interest at periodic intervals till the Fixed Deposit reaches maturity. Much like bank Fixed Deposits, companies also offer Fixed Deposits in order to raise funds for operations. Corporates, NBFCs, and financial institutions all offer company/corporate deposits.
How does Corporate Fixed Deposit work
Corporate Deposit or Corporate Fixed Deposit are term deposits that are held over a specific or fixed timeframe and come with a fixed interest rate. This does not mean that all corporations can offer Fixed Deposits. Corporate Fixed Deposits are governed under the Sec 58A of The Companies Act, 1956. There are RBI guidelines involved in permitting companies to launch Fixed Deposits. For a company, raising funds through the company Fixed Deposit route is a convenient option because it is an unsecured loan.
Benefits of Investing in Corporate Fixed Deposits
- Rate of Interest
One of the biggest factors before choosing any type of investment is how much returns the investor will make; this factor also resides with Fixed Deposits in the form of Rate of Interest. Banks offer an average rate of interest contrary to Corporate Fixed Deposits. If one has invested in Corporate Fixed Deposits over banks, they can expect a higher and guaranteed interest rate over the tenure. Another reason one should invest in Corporate Fixed Deposits is that most of them offer both cumulative and non-cumulative interest-based payouts. In cumulative interest payout, the interest is reinvested, leading to a better payout and compounded returns.
- The Penalty Period In Case of Early Withdrawal Is Comparatively Lower With Corporate Fixed Deposits
According to the guidelines of the Reserve Bank of India, all Fixed Deposits should have a penalty period of at least three months. According to which, if you withdraw your invested money from a Fixed Deposit within the initial three months, you will have to bear a penalty. Beyond this period, it is up to your NBFC, Company, or Bank to decide its penalty period. Generally, the penalty period of corporates is lesser than that of banks.
Other Benefits
- Ratings
Corporate Fixed Deposits are also given ratings by reputed agencies like CARE, CRISIL or ICRA that track the company’s record and examine whether repayments and interest rates are offered on time and are revealed to potential investors. Companies are given ratings such as AAA, AA and BBB, among others. The highest rating is AAA and is assigned by agencies after looking at the company’s track record.
- Assured Returns
Again, same as bank Fixed Deposits, Corporate Fixed Deposits as well offer assured returns. For example, if you have invested Rs. 1 lakh in a corporate Fixed Deposit and the concerned corporate or non-banking financial institution has promised to provide you 7% rate of interest, then it does not matter how the rate of interest fluctuates or market moves, you will get the promised rate of interest at the end of the year.
- Risks in Corporate Fixed Deposit
Before investing, a wise decision is to analyze the risk and how much risk can be afforded. Fixed Deposits are safe investments, but they do involve risks though in the longer run. Corporate Fixed Deposits are unsecured, and there is always a doubt of the company collapsing or going bankrupt.
Tax on Corporate Fixed Deposits
Corporate Fixed Deposits are taxable only if the income from interest exceeds Rs. 5000. If the interest received is above 5000 then, the TDS rate is 10% (in case PAN details are provided) If PAN details are not provided, TDS deduction on FD interest is chargeable at 20%.
How much Return can you Gain from Corporate FD
The interest rate for Corporate Fixed Deposits varies depending upon the financial institution. The best rates on Corporate Fixed Deposits in India can be as low as 6% to as high as 8% p.a.
How to Easily Invest through Nivesh
Any investor can enjoy the benefits of investing through Nivesh in the following easy steps:
1. Create an account in Nivesh by providing your basic KYC details. (If you already have an account then just login into your account)
2. On your portfolio page click on the Buy New tab at the right top corner of the screen.
3. Select Fixed Deposit category and choose the funds you want to purchase.
4. Your request will be generated and a relationship manager will get in touch with you for getting the investment done.
Frequently Asked Questions (FAQs)
1. What is the Most Important Factor one Should Consider before Investing in Company Fixed Deposit?
Fixed Deposits offer guaranteed returns as they are not linked to the markets. This is why they are sought after by those looking for stability and fixed income. Similarly, Corporate Fixed Deposits also offer guaranteed returns and are relatively higher than banks. If a company offers a certain rate of interest, it is offered irrespective of any fluctuations in the markets or interest rates.
2. Is it Safe to Invest in Corporate Fixed Deposits?
Yes, Corporate Fixed Deposits are safe, but investors should consider the financial position and credit quality of the company before investing.
3. How can I get Maximum Interest on Corporate Fixed Deposit?
Corporate fixed deposits that offer cumulative payouts are considered to bring the maximum interest rate as In cumulative interest payout, the interest is reinvested, leading to a better payout and compounded returns.
