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May 12, 2021
Finance

Why Corporate FDs are a good Investment

Fixed Deposits have always been the most common investment option in India. They’ve been the all-purpose solution for anything from planning for a vacation to saving for retirement. Despite their popularity, Fixed Deposits are not the best option for long-term goals. FDs, on the other hand, may be a good choice if the target is short-term or cannot be delayed. That is due to the fact that it comes with the promise of a profit. If you’re concerned about bank Fixed Deposit interest rates dropping, you can opt for corporate Fixed Deposits.

What is a Corporate Fixed Deposit?

Corporate Fixed Deposits are a form of deposit. They, like banks, provide the assurance of assured returns and the freedom to choose the term. Furthermore, corporate FD rates are higher than bank FDs.

Similarities Corporate FDs Have With Bank Fixed Deposits

  • Corporate Fixed Deposits provide a guaranteed return

One of the most appealing aspects of investing in corporate Fixed Deposits is that, like bank Fixed Deposits, they provide a guaranteed return. Let’s say you put Rs 1 lakh into a corporate Fixed Deposit and the NBFC/corporation guarantees you a 7% annual interest rate. Then, regardless of how the markets or interest rates fluctuate during the year, you will earn Rs 1.07 lakh as promised at the end of the year. Furthermore, you will know the exact sum you will earn at maturity at the time of investment. This one significant benefit allows you to make more confident financial plans in the future.

  • Higher rates for senior citizens

If a non-senior citizen earns 6% on a corporate Fixed Deposit, a senior citizen would typically earn 6%+ on the same investment. This is an additional benefit for senior citizens who are elderly who depend on Fixed Deposit returns for income.

  • Flexibility of choosing the tenure

A corporate Fixed Deposit normally has a period of one to five years. You also have the option of selecting any period within that selection. So, if your target is a year away, you can invest for a year; if it’s 2.5 years away, you can invest for 2.5 years.

Benefits of Corporate Fixed Deposits

  • Interest rates for corporate FDs are higher than bank FDs

Corporate FD pays higher interest rates than those offered by most banks. For example, SBI, India’s largest public sector bank, currently offers interest rates ranging from 5.1 to 5.7 percent on Fixed Deposits with terms ranging from one to five years. Bajaj Finserv’s Fixed Deposit, on the other hand, provides returns of up to 7.2 percent per annum for the same time span.

  • The penalty period for early withdrawal is lower in the case of corporate FDs

All Fixed Deposits must have a minimum penalty period of three months, according to RBI guidelines. That is, if you take your money out within the first three months, you will be charged an early withdrawal tax. After that, it is up to the bank/NBFC/company to determine the length of its penalty period. Corporate FDs have a shorter penalty duration than bank FDs. In the case of SBI, for example, you will be charged a penalty if you withdraw your money before the maturity date.

Do corporate FDs carry higher risk?

When it comes to corporate FDs, many people are concerned that because these deposits are unsecured, they will lose money if the company goes bankrupt. It’s worth noting that all NBFCs/companies that want to raise deposits must follow the RBI’s strict regulations and guidelines. When it comes to investing in corporate Fixed Deposits, such safeguards ensure that the risk to investors is kept to a minimum.

Wrapping Up

Invest in a corporate Fixed Deposit if you have a target that needs to be met within 1 to 5 years. It offers the protection of a fixed-income instrument while still offering a higher rate of return than bank FDs. Visit Finserv MARKETS to know more.

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