- Date : 27/11/2023
- Read: 3 mins
There are various checks and research you must do before selecting a company FD for your investment
You may often wonder; how do I choose the best FD? If you have researched a little, you may have noticed that it is not just the banks that offer FD products. Corporate FDs (also know as Company FDs) offer a much higher rate of interest. But should you decide just based on the interest rate?
Company FDs can be a good investment, as long as you are selecting them properly. Let’s find out how to choose corporate FDs.
Corporate FDs are not covered under Deposit Insurance and Credit Guarantee Corporation
Apart from credit rating, company profitability is important to ensure your deposit’s safety
Company FDs may be offered by NBFCs, government companies as well as private companies
What’s My Benefit?
The interest rate offered by corporate FDs is generally more than bank FDs. The interest rate varies among NBFCs and companie
nter. Smaller banking and financial institutions have a small but mentionable default risk. In India, the government insures bank FDs for a sum of up to Rs 5 lakhs.
Corporate FDs also have default risk. But luckily, you can check the risk rating of these corporate FDs. A triple A rating (AAA) is considered to be the safest, followed by AA and A. Before investing in a company FD with an AAA rating, ensure that the rating has been given by a reliable agency like CRISIL, Care, ICRA, Fitch, etc.
Apart from the risk rating, your research is important too. The company offering the FD must have strong financials, comply with RBI and SEBI rules, and have a strong growth outlook. The company must have a track record of honouring its FDs. Some of the major and popular names are Bajaj Finance, Shriram, Mahindra Finance, LICHFL, PNB HFL, etc.
Note that a proper research will eliminate the weaker and unreliable companies from the picture.
The Strings Attached
You must also look at the premature withdrawal rules of the company FDs. Bank FDs are known to be comparatively lenient, with smaller penalties on premature withdrawals.
Bank FDs offer a wide range of tenure options. However, the tenure options in company FDs may be comparatively limited. Check if the tenures offered by your corporate FD suit you.
If a corporate FD meets your risk appetite and financial goals, and if you find the tenure suitable, you can invest and earn an additional interest income. Also, do not forget to read the terms and conditions of the FD product carefully.
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