- Date : 17/08/2023
- Read: 5 mins
What is a corporate fixed deposit and which one earns you the most interest?
A look at some of the high-ranking Corporate Fixed Deposits to look out for in India in September 2023. Manipal Housing Finance Syndicate Ltd that offers you 8.25% interest rate, Shriram Finance Limited that gives you an interest rate of 7.60%, Sundaram Home Finance with its interest rate of 7.45%, Bajaj Finance Ltd. which gives you an 7.40% interest rate, etc.
NBFCs offering the best rates for Corporate Fixed Deposit
Source: Various company websites
Note: The interest rate mentioned is as of 31st August 2023
What is a corporate fixed deposit?
Corporate fixed deposit or company fixed deposit is a term deposit allowed by Non-Banking Financial Companies (NBFCs) and corporates.
What are the benefits of choosing a corporate fixed deposit?
There are some clear advantages of choosing a corporate fixed deposit over a bank fixed deposit, such as:
- It ensures you of higher returns.
- In case you need an early withdrawal, the penalty/lock-in may be lower.
- There is a flexibility of tenure: monthly, quarterly, half-yearly, and yearly.
- Investors are ensured of minimum risk as corporate FDs are backed by reputable rating agencies.
- With certain terms and conditions, corporate FD can be liquidated easily.
- Both cumulative and non-cumulative interest payouts are available.
What are the regulations/guidelines for a corporate fixed deposit?
A handful of NBFCs and corporates are granted permission by RBI or the Ministry of Corporate Affairs (MCA) to accept deposits from the public. However, these entities have to follow rigid regulations and guidelines laid down by the RBI and MCA, such as:
- NBFCs need to possess a legitimate licence to accept deposits.
- The FD period must be a minimum of one year and a maximum of five years.
- NBFCs can collect the total deposit only up to what RBI has permitted. This could vary depending on the NBFC.
- NBFCs cannot fix the interest rates higher than what RBI has prescribed. It may be revised over time.
- All information related to fixed deposits must be disclosed to RBI.
- NBFCs or corporates are not allowed to offer any additional benefits or gifts to depositors.
That’s not all. NBFCs or corporates need to get a good credit rating from rating agencies such as CRISIL and ICRA. You can choose an NBFC to invest in based on how high their ratings are.
Who can invest in a corporate fixed deposit?
Resident individuals (including senior citizens and NRIs) can generally open a corporate fixed deposit account. A minor can also open an account along with a guardian. Entities such as companies, partnerships, and societies too can invest in such deposits.
What are the demerits of a corporate fixed deposit?
Bank FDs come with a guarantee and deposit insurance, while corporate FDs have a default risk attached. It is important to check the rating of a company before depositing in its FD scheme. There are no tax benefits on interests earned in corporate FDs, unlike bank-based five years’ FD which is tax-free.
Can company fixed deposits be prematurely withdrawn?
A corporate FD can be withdrawn before the maturity period. However, companies may insist on a minimum investment period that can vary from six months to one year. Penalty charges for premature withdrawal may also be applicable.
How can one invest in a corporate fixed deposit?
An investor can approach the company directly and apply to open a fixed deposit account. It is opened after the fulfilment of KYC requirements. It can also be opened through brokers or agents who can help you open the account with the corporate of your choice.
What are the interest payouts like in a corporate fixed deposit?
Interest payments can be cumulative or non-cumulative. In a cumulative fixed deposit, the interest is paid at the time of the maturity of the FD along with the principal amount. The interest is compounded annually, and any tax applicable will be deducted at the time of the final payout. It is suitable for people who are not looking for a regular interest income.
Non-cumulative FD schemes pay the interest to the investor at the end of each month, quarter, six months, or year, as chosen.
Does a change in the interest rate affect corporate FD returns?
Subsequent changes in the rate of FD interest doesn’t affect the returns of an investment that is already locked in with the company. If the rate of interest increases, the investor can invest in a new FD to benefit from the same.
What should one look for in a company while investing in a corporate FD?
The company must be a reputable one that enjoys trust in the financial market. Stability ratings of ICRA and CRISIL should be checked to ensure the safety of your money. Deposit tenure and interest payout options should be as per your convenience. Above all, the interest rate offered must be among the best in the industry.
What is credit rating in Corporate FDs and how to read these ratings?
CRISIL ratings in the long-term scale range from AAA to D - and are AAA, AA, A, BBB, BB, B, C, and D. A + or - along with rating AA to C indicate the comparative ranking within the category. CRISIL also adds Positive, Stable, or Negative along with the rating to depict the medium-term horizon of the rating of the organisation.