Corporate FD: Company Fixed Deposit in India

For many decades, fixed deposits have been the most popular saving choice. They are the most straightforward financial tools to comprehend. As a result, they are a favourite in most Indian families. Almost everyone understands how they function. You put money in a bank and receive interest on it. 

Corporate FD or company fixed deposits are becoming increasingly popular. They are more profitable than fixed deposit rates given by banks.

We address all of your questions about corporate fixed deposits in this thorough blog, including their description, advantages, who may invest in them, and more.

What Is A Fixed Deposit?

Individuals can use a Fixed Deposit to deposit a large sum into their bank for a certain length of time at an agreed-upon rate of interest. At the conclusion of the period, they are entitled to the principal amount invested as well as the compound interest. FD Interest rates are set when the deposit is opened, and the rate is decided by the length of time the deposit is kept.

Fixed deposits offer guaranteed returns. Unlike market-led investments, whose returns fluctuate over time, the returns on an FD are fixed at the time the account is created. Even if interest rates fall after the investor opens a Fixed Deposit, the investor will still get the agreed-upon interest rate. FDs are considered significantly more secure than other sorts of investments, such as stocks.

The Fixed Deposit return is determined by the interest rate and kind of deposit chosen. Individuals can pick between a monthly or quarterly interest payout or reinvestment to take advantage of compounding.

What Is A Corporate Fixed Deposit?

A corporate fixed deposit (Corporate FD) is a term deposit held for a certain period of time at a fixed rate of interest. Corporate fixed deposits are offered by both financial and NBFC Fixed deposit. Companies may offer fixed deposits with maturities ranging from a few months to a few years.

To match your investment needs, choose from a choice of corporate fixed deposit options with varying tenures, interest rates, and institutions. A diverse range of AAA and AA-rated Company Fixed Deposits offer respectable returns with significantly lower volatility.

Before investing in Corporate FD plans, it is wise to examine the following factors:

• Credit Rating: Choose higher-rated corporate FDs based on their credit rating, which indicates the underlying risk of the firm.

• Business Background: Use financial statements, management discussion and analysis, and other materials to assess a company’s economic viability (MD&A).

• Repayment History: The repayment history of a corporation affects its credit score, reputation, and stability.

Corporate FD: Who Should Invest?

Corporate fixed deposits might be a useful investment option if you have a short-term financial objective, such as saving for a foreign trip or purchasing a present for your spouse.

Corporate FDs, on the other hand, are not protected by the DICGC (deposit insurance of up to 5 lakh is only offered for bank FDs). To alleviate this fear, confirm that the company’s fundamentals are robust and that it has a decent credit rating. If a respectable agency’s credit rating is below average, you should reconsider investing in that firm and explore other trustworthy organisations. A high-rated corporate deposit with a AAA or comparable rating is excellent. It represents the highest level of security in terms of interest and principal payments. The degree of safety decreases as you move down the rating chart.

Features of Corporate Fixed Deposit

• Corporate FD is backed by a credit rating (such as AAA) from recognised rating agencies such as CRISIL, ICRA, and CARE. The grade indicates a high likelihood of default in interest and principal payments and hence supports depositors in judging the creditworthiness of the financial institution.

• Depositors can choose from a number of interest payment options offered by NBFCs/HFCs based on their needs. Pay-out options include monthly, quarterly, semi-annual, and annual. Depositors can additionally choose the cumulative FD option, which reinvests the interest component, increasing the potential of compounding. As a result, the cumulative option will help the depositor earn higher returns than non-cumulative options.

• Depositors may also seek an early withdrawal from the firm. On public deposits, the majority of HFCs and NBFCs impose a penalty rate (up to 2%). Certain public deposits, on the other hand, have a three-month lock-in period during which deposits cannot be withdrawn.

• Depositors can also get loans against corporate FDs in both cumulative and non-cumulative FD schemes. Some financial institutions, however, charge a 2% premium over the maximum corporate fixed deposit interest rate.

• The interest income earned on corporate fixed deposits is taxed at the depositor’s marginal tax rate. Furthermore, corporate fixed deposits are riskier than bank fixed deposits since they are not covered by DICGC, an RBI subsidiary.

Why Should You Invest In A Corporate/Company Fixed Deposit?

Corporate fixed deposits outperform bank FDs because they pay a substantially greater interest rate. The interest rate spread between conventional bank FDs and corporate fixed deposits is typically between 1% and 3%. This apparently little distinction can have a significant influence on your corpus in the long term. This difference may be seen by utilising an FD return calculator with different FD interest rates. Furthermore, business fixed deposits often have fewer lock-in periods and are more flexible in terms of how interest is paid.

A corporate fixed deposit, like a bank FD, can be utilised to get a loan when funds are required in an emergency. The amount sanctioned may differ from one financial institution to the next. It may usually reach 75% of the set deposit amount.

Top Corporate Fixed Deposit Schemes

How To Choose The Best Company Fixed Deposits?

If you intend to opt for corporate fixed deposits, it is simple to select the one with the greatest interest rate. That method, however, is not optimal. Here are some crucial aspects to consider when selecting the finest corporate fixed deposit:

• Background Of The Company: It is a wise decision to investigate the history of the company with which you want to start an FD. A trustworthy firm with a lengthy track record of satisfied clients and success is a secure investment. The internet has made it easier for investors to go through the websites of financial institutions and evaluate their possibilities before settling on a final organisation.

• History Of Repayment: The foreign exchange market has recently grown more competitive than ever. Many corporations have defaulted on their payments in the past due to the allure of high interest rates. Alternatively, depositors did not get their payouts on time. Look for organisations that make regular interest payments and return fixed deposits on schedule.

• Credit Rating: To evaluate the expected risk levels of a firmly fixed deposit, popular credit rating organisations such as ICRA and CRISIL use a 14-point grading system. The greater the rating, the more secure the investment. With this rating, you can assess the stability of a corporate fixed deposit and even compare similar products before deciding on an investment.

Eligibility Criteria For Corporate/Company FD

The following are the eligibility requirements for Corporate/Company FDs:

• Companies incorporated under the Companies Act of 1956.
• Any limited liability business, whether public or private.
• Any unincorporated organisation that is not a partnership firm.
• Any company that is registered under the Partnership Act of 1932.
• Limited liability partnership (LLP).
• Any registered cooperative society under the Cooperative Societies Act of 2002. Any undivided Hindu family (as specified in Section 3 of the Income Tax Act of 1961). Any firm that is not covered by one of the above categories.
• Any additional entity not covered by one of the above categories.

Individual FDs are listed below: Any individual Indian citizen who has reached the age of 18. Any foreign national who lacks a PAN card issued by the Income Tax Department. Any person of Indian origin (PIO) who has spent more than 182 days in a year outside India and does not have an Aadhaar card issued by the UIDAI.

Documents Required For Corporate FD

The following documents are required by individuals to open a corporate FD:

• Voter ID Card
• Ration Card
• Passport
• NREGA Job Card
• Valid Employee’s ID
• Government-validated address proof
• 2 Colour Passport-sized photographs
• Driver’s License
• Aadhaar Card
• PAN Card

Tax Implications On Corporate Deposits:

The interest on bank deposits is accounted for under the income from various other sources section of the tax laws. The interest generated on fixed deposits is taxed at the individual’s tax slab rates. Consider an individual who earns INR 15,000 in interest over the course of a fiscal year. If the individual is in the 20% tax bracket, 20% of INR 15,000 is taxed, plus a 3% cess. In most cases, the tax is deducted at the point of sale.

Corporate fixed deposits are used by businesses to raise debt for their operations. When compared to bank fixed deposits, these investments carry a higher level of risk. Despite the fact that the repayment is agreed upon at a certain interest rate, default risk plays a significant role in such investments. The repayment of corporate fixed deposits is closely related to the company’s profitability. If the firm fails to perform, the likelihood of default on the loan increases. As a result, company fixed deposits pay a greater interest rate than bank deposits. In the event of a company fixed deposit, the TDS limit on interest earned is INR 5,000. Companies would deduct tax at source if the interest earned in a fiscal year exceeded INR 5,000, based on the individual’s tax bracket.

Is Investing In A Company/Corporate Fixed Deposit Risky?

We’ve all heard that money doesn’t grow on trees. However, with a proper savings strategy, you can help the money grow. A corporate fixed deposit is an investing strategy that allows you to multiply your money and double your savings.

Gone are the days when you could rely only on banks for safety and dependability. A corporate fixed deposit is comparable to a bank fixed deposit, except it offers larger yields while posing less risk. Furthermore, Credit Rating Information Services of India Limited (CRISIL), Investment Information and Credit Rating Agency of India Limited (ICRA), and India Ratings & Research grade the safety of NBFCs that provide company fixed deposit plans. As a result, a corporate FD is quite safe.

Advantages Of Company/Corporate Fixed Deposits

Let us now look at the major benefits of investing in the top corporate FDs:

• Flexibility Of Tenure– Corporate FDs, like bank FDs, provide a range of tenure options ranging from 12 to 60 months during which you can remain invested. You can invest for a year if you are saving for a short-term objective. You can invest for five years if you want to establish a good corpus.

• Assured Returns- As previously stated, the best corporate FDs have higher ratings from reputable credit rating organisations. The majority of firms that provide corporate deposits have CRISIL’s FAAA/Stable rating and ICRA’s MAAA/Stable rating. In terms of timely payment of principal and interest, they are among the best safety ratings available in the market. A corporation with a good credit rating is more likely to provide consistent returns on investment regardless of market volatility.

• Greater FD Interest Rate – A corporate fixed deposit programme provides a higher interest rate than a traditional bank fixed deposit scheme. To get the precise interest rate on a corporate fixed deposit, utilise an online FD calculator.

• High Safety-Rated FD Schemes – To encourage FD investment among conventional and new-age investors, NBFCs/corporates now provide high safety-rated FD schemes.

• Loan Against an FD – If you have a corporate fixed deposit account with any NBFC/company, you may get a loan against fixed deposit

Steps To invest in Fixed Deposit Through Kuvera

Step 1: Download the Kuvera app, and complete your KYC with PAN and Aadhaar.

Step 2: From ‘Home’ go to “Invest” and select Fixed Deposit.

Step 3: Select ‘NBFC FDs Option‘ to get a list of all corporate fixed deposits available on Kuvera. Tap on any to know its tenure, interest rate, and minimum deposit requirements. Also, check the lock-in period etc.

Step 4: Select the fixed deposit you want to buy and press the “Start FD” button.

Step 5: Enter the required details and tap on ‘Pay Now’. You are done within minutes!

FAQs

• What Distinguishes A Bank FD From A Corporate FD?

A bank fixed deposit is something that banks only provide. Corporate or corporate fixed deposits are investment products offered by non-banking financial institutions and companies. When compared to bank FD interest rates, company or corporate FD rates are often higher. Corporate FDs, on the other hand, are unsecured, which means that there is no deposit insurance coverage for them.

• What Is The Fundamental Method Of A Premature Corporate FD Withdrawal?

Corporate fixed deposits may be redeemed or cancelled before maturity at the physical branch of the NBFC or company, as well as online via their website. You must provide the following as part of the fundamental procedure for early withdrawal from corporate fixed deposits:

• The original fixed deposit receipt including the signatures of all holders
• A cancelled cheque
• A letter of request from the customer outlining the reason for the withdrawal

• What Should I Consider While Picking A Company Fixed Deposit?

When selecting a corporate FD, take into account the following:

• The company’s CRISIL, ICRA, or CARE credit rating.
• The product offers company FD interest rates.
• The company’s financial position and history while issuing the deposit.
• History of past repayment.

• Corporate Fixed Deposits: Are They A Wise Investment?

A corporate FD is similar to a bank FD, with the exception that it offers a larger return while carrying less risk. Because the bulk of the instruments are rated, corporate fixed deposits provide a high level of safety. Corporates provide 6.5%–7.5% on deposits for one to five years, and 8–9% over time.

• Can A Deposit Be Made In The Name Of The Minor Alone?

Yes. You may deposit money in a minor’s name as long as the minor is represented by his natural or legal guardian, who must also sign the deposit application form on the child’s behalf. The guardian must receive all correspondence about the deposit.

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