Reasons Why You Should Select Corporate FDs Over Traditional FDs

When we think of safe savings, Fixed Deposits offered by banks come as the first thing in our minds. And this is right as well, as these FDs have various advantages, like the highest FD rates, the facility of premature withdrawal (if required), and tax savings. However, have you ever thought of corporate fixed deposits that provide a comparatively higher rate of interest?

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Recently, most of the Indian Banks have reduced their FD interest rates by 0.25% to 0.75%, like the current IDFC Bank FD rates are 5.75% for a tenure of one year to 499 days. This has made corporate fixed deposits even more lucrative.

What is Corporate FD?

Corporate FDs are also known as Non-Convertible Debentures (NCDs). These FDs are the same as Bank FDs except that these FDs are offered by corporates and not by banks or other financial institutions. Corporate Fixed Deposits are fundraising exercise by corporates by which they raise money for running their business. Here the corporates use the money of the investors (you) to repay their existing loans, optimize their business plans, expand their business, and perform other same activities. Some of the famous corporate FDs are offered by Mahindra Finance, DHFL, Gati, Bajaj Finance, and PNB Housing Finance.

Comparison Between
Fixed Deposits, Guaranteed Return Plans & Debt Mutual Fund
Guaranteed Return Plans, Fixed Deposits &
Debt Mutual Fund
Guaranteed Return Plans
Returns Before Tax
7.5% (TAX-FREE)
Returns After Tax
7.5%
Guaranteed Returns
Yes
Life Cover
Yes
Tax on Profit
Tax Free*
Risk
No Risk
awards
Still Better than FD’s and Debt Mutual Fund
Fixed Deposits
Returns Before Tax
7% (TAXABLE)
Returns After Tax
4.8%
Guaranteed Returns
Yes
Life Cover
No
Tax on Profit
Taxable
Risk
Low Risk
Debt Mutual Fund
Returns Before Tax
8% (TAXABLE)
Returns After Tax
5.5%
Guaranteed Returns
No
Life Cover
No
Tax on Profit
Taxable
Risk
High Risk
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Features of a Corporate FD

The benefits and features of a corporate fixed deposit are:

  • These fixed deposits are offered as bonds or fixed deposits or non-cooperative debentures by financial institutions or companies.

  • They are low to medium risk instruments of investment.

  • These FDs are not influenced by market fluctuations.

  • You can easily liquidate these FDs.

  • They behave like normal bank fixed deposits but have a higher rate of interest.

  • The facility of premature withdrawal without any restriction.

  • Corporate FDs offer non-cumulative and cumulative interest pay-out options.

What is Good About These Corporate Fixed Deposits?

The first question that may come to your mind can be what makes the corporate FDs better than regular Bank FDs? The answer to this question is explained below:

  • Interest Rates: The highest FD rates are offered by corporate FDs than those of Banks. The rate of interest of most of the corporate FDs ranges between 9% to 13%. Some corporates even provide a higher rate of interest to the senior citizens.

  • Payment of Interest: As an investor of corporate FD, you can choose the interest payment frequency, which can be monthly, half-yearly, quarterly, yearly, or on a cumulative basis. This option gives an additional source of income to the investors.

  • Credit Ratings: The credit ratings to corporate FDs are given by independent rating agencies like ICRA, CRISIL, and CARE. These agencies assess the creditworthiness of the corporates and accordingly give the ratings. On the other hand, there are no credit ratings applicable in the case of FDs offered by Banks.

fd return beater

However, not everything is good with corporate FDs and you must know some of the cons of these FDs and analyze them against the pros mentioned above.

  • Term of FD: The banks offer various terms for investment in FDs which start from seven days. Whereas for corporate FDs the term of FD ranges from one year to eight years.

  • FD Insurance: Deposit Insurance and Credit Guarantee Corporation (DICGC) of RBI insured the bank FDs of up to Rs. 1 lakh, but the same cannot be said about corporate fixed deposits.

  • Withdrawals: It is easy to withdraw bank fixed deposits, whereas withdrawal from corporate fixed deposits may take up to some weeks.

  • Risk Quotient: The corporate fixed deposits are riskier than bank fixed deposits. The reason for the same is their unsecured nature. If a corporate becomes a defaulter, then as an investor you stand to lose a significant amount of your invested money. For minimizing the risk, it is advised to invest in the fixed deposit of a company that has good credit ratings.

Tips When Investing in Corporate Fixed Deposit

One of the best filters while investing in corporate fixed deposits is checking the credit rating of the company and the rating agency that has given the ratings. You can check the track record of the company in dealing with its depositors and investors. Therefore, credit ratings and goodwill of the investor has to be key factors to decide. Select a corporate fixed deposit if:

  • You are comfortable with no or lower liquidity.

  • You want returns that are higher than the bank's fixed deposit.

  • You have seen the credit ratings of the corporate and are satisfied with the company and its business sector.

Some of the Recent Corporate Fixed Deposits

Name of the Company Industry Rating Period Minimum Investment (Rs.) Rate of Interest
Mahindra Finance Limited Finance CRISIL – FAAA 12 months Rs. 5,000 5.70%
Bajaj Finance Limited Finance CRISIL – AAA, ICRA – MAAA 12 months Rs. 25,000 6.10%
HDFC (Platinum) Finance CRISIL – FAAA, ICRA – MAAA 22 months Rs. 20,000 5.85%
PNB Housing Government CRISIL – FAA+ 12 months Rs. 10,000 5.90%
Sriram Transport Finance Limited – Sriram Unnati Finance CRISIL – FAA+, ICRA – MAA+ 12 months Rs. 20,000 9.25%
LIC Housing Finance Finance CRISIL – FAAA 12 months Rs. 20,000 5.65%
FD interest rates India have fallen consistently over the last 12 years.
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Eligibility to Purchase Corporate FDs

The eligibility to purchase a corporate fixed deposit is mentioned below:

  • One has to be an Indian resident

  • Hindu Undivided Families

  • Partnership firms

  • Clubs

  • Corporates

  • Associations

  • Societies

Summing It Up!

Since both these types of fixed deposits have their pros and cons thus selecting one is your choice. It is suggested to select one that suits your requirements. If getting the highest FD rates is your need from FD, then opting for a corporate fixed deposit can be your choice. However, if the safety of your investment is your requirement, then opting for a regular bank FD is recommended. So, it is up to you to select a fixed deposit scheme as per your choice.

On the one hand, where the rate of interest of corporate fixed deposits is high, the other hand FD insurance is low for them. While premature withdrawal is allowed in both these FD schemes, credit rating is given to corporate fixed deposits only. Go through the pros and cons of both these fixed deposit schemes and select that is suitable to you.

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