English 
Hindi The primary aim of an investor is to achieve optimum risk adjusted return. To ensure a risk-reward balance in the investment portfolio, investors must make sure that it has both debt and equity components. Talking about Debt instruments, it primarily includes bonds, debentures, certificates of deposits, debt funds and Fixed Deposits. These instruments are relatively stable, and they help to balance out your equity portfolio. One such instrument among these is fixed deposit. Fixed deposits are the best investment option for risk-averse investors. It is considered one of the best investment options for people who are looking for good stable returns without exposing themselves to volatile market risk. Fixed deposit can be further classified broadly into two categories – Corporate Fixed Deposit and Bank Fixed Deposit.
What is a Corporate Fixed Deposit?
A Fixed Deposit entails making a one-time investment and receiving interest at regular intervals until the Fixed Deposit matures. Corporate Fixed Deposits, similar to Bank Fixed Deposits, are used by companies to raise funds for operations or day to day working. Generally, Non Banking Finance Companies (NBFCs) and financial institutions raise funds through fixed deposits.
Investment in Corporate Fixed Deposits is suitable for Investors seeking good returns in the fixed income category (especially compared to traditional bank FDs) and those who want a regular stream of income from their investments.
What is a Bank Fixed Deposit?
Fixed deposits are also known by the terms like ‘term deposits’ or ‘time deposits’ and are considered to be the safest investment options as compared to other saving investment options. Bank FDs allow investors to deposit a lump sum amount for a pre-decided tenure to earn much higher interest than what regular savings accounts provide.
FD interest rates account remains unaffected even after fluctuations in the market, that too, throughout the decided tenure.
Difference between Corporate FD and Bank FD :
| Basis | Corporate FDs | Bank FDs |
| Return | Higher returns compared to bank FDs. | Low returns. |
| Risk | Higher risk compared to bank FDs. | Extremely-low risk with guarantee upto Rs. 5 lakh in case of default. |
| Penalty | All Fixed Deposits must have a minimum penalty period of three months, according to RBI guidelines. That is, if someone withdraws money within the first three months, a penalty will be charged for early withdrawal.The penalty period for Corporate FD is lower than Bank FD. | The penalty period for Bank FDs is usually higher than that of Corporate FDs. |
| Guarantee | FDs opened with Corporates do not qualify for any statutory guarantees. The risk of opening corporate FDs will primarily depend on the issuers’ financial capacity to honor the repayment of FDs. | Any deposit with banks including FDs are insured upto Rs. 5 lakhs for each depositor by Deposit Insurance and Credit Guarantee Corporation (DICGC) . |
| Credit Rating | Corporate Fixed Deposits are also rated by reputable agencies such as CARE, CRISIL, or ICRA, which examine the company’s track record and determine whether repayments and interest rates are made on time and are disclosed to potential investors. | There is no such criteria for banks to accept deposits as far as credit rating is concerned. But they have other criterias as specified by RBI from time to time . |
| Deposit Quantum | The total deposit that an NBFC can collect can be up to a permissible limit, which again varies for different NBFCs as specified by RBI. | Usually there is no such restriction on limits for banks . |
Conclusion
We can conclude that if one has a goal that needs to be achieved within 1 to 5 years, investing in a Corporate Fixed Deposit can be a good option as it provides the investor with assured returns and at a rate which is higher than bank FD rates . But one should note that to minimize the risk of default, one should stick to AAA-rated Corporate Fixed Deposits. The Corporate FDs are suitable for investors who wish to obtain regular income as FDs allow investors to choose between monthly, quarterly, half yearly and yearly payout options whilst keeping the principal amount secure.
Frequently Asked Questions (FAQs)
What is the most important factor one should consider before investing in a company fixed deposit?
Fixed Deposits deliver guaranteed returns because they are not market-linked. This is why those seeking stability and a steady income look out for them. Similarly, Corporate Fixed Deposits provide guaranteed returns that are higher than those offered by banks. If a company offers a certain rate of interest, it does so regardless of market or interest rate fluctuations. However investors should note that to minimize the risk of default, one should stick to AAA-rated Corporate Fixed Deposits.
Is it safe to invest in fixed deposits?
It is subjective in nature , both Fixed Deposits are safe, but before investing in a corporate FD, investors should consider the company’s financial position and credit quality.
How can I get maximum interest on a fixed deposit?
FDs with cumulative payouts are considered to have the highest fixed deposit rates. That fixed deposit interest rate is reinvested in a cumulative interest payout, resulting in a higher payout and compounded returns.
Which is the best corporate Fixed deposit?
Corporates are ranked or rated in terms of AAA, AA, and BB, with these ratings based on the companies’ prior financial position and performance. The best company for fixed deposits can be determined using these ratings. For a corporation, AAA is the highest rating.
