What is Corporate Fixed Deposits? Should we invested into Corporate FD


The most well-known and commonly used instrument to invest is a fixed deposit. The best fixed deposits are usually offered by banks. The rates of interest are higher than a savings account and the fixed term and amount that the FD offers is a great way to invest safely. But if you want to get the highest FD rates in the market, look for a Company Fixed Deposit.


What are Company fixed deposits?

Company FD’s are investment options that are interest bearing. They are offered by banks, NBFC’s and other financial institutions. The corporate deposit attracts customers like the Government agencies, large companies, public institutions and certain Non-profit organizations. The CD’s are available in different tenures and interest rates from different companies. Study the company offering the investment opportunity well and invest wisely.

Are the best fixed deposits offered by banks or through company fixed deposits?

Corporate FD’s generally offer the highest Fixed Deposit rates. You must remember that a higher return entails a higher risk involvement, so it is imperative that you choose wisely and keep your capital safe. Company FD’s often have a higher interest rate available, have flexible tenure and have no TDS liability if the annual interest income is below Rs 5000 every fiscal year.

·         Company FD does tend to be riskier than their banking counter parts. They tempt you as returns could be significantly higher than bank FD’s.  These instruments are not secured assets of the company. The chances that there could be a default in payment of either or the interest and the principal are always there. it is because of this risk element that interest rates are higher for Company FD’s rather than corporate FD’s.

·         Company FD’s attract taxes deducted at source or TDS if the interest earned on a corporate FD is over Rs 5000. The figure stands at Rs10,000 for bank FD’s.

How to check whether the Company offering the FD is reliable?

There are some safeguards that can help you determine whether the company is reliable before you invest.

·         You should check what the particular company’s rating is in the eyes of financial institutions. CRISIL and ICRA bestow ratings on companies. It is generally safe to buy FD’s that do not carry any rating risk and are rated at AAA+ or AAA. A lower rating may spell danger, and it is wise to stay away even if the rate of interest is higher.

·         You need to be careful before you invest a large sum of money. The due diligence is up to you yourself. It is wise to get all the particulars before investing. It is definitely better than losing the entire amount. The searches you need to do are a background profile for the company, financial performance of the company in the past and the customer service reports.  The background of the company’s promoters and directors will also give you a sense of the security that the company offers vis-à-vis your deposits.

·         The lower the rating the company concerned enjoys more the interest rates will be higher. The lower ratings force the company to offer a higher rate of interest to attract investors. If you feel that the risk is justified, opt for a short term Fixed Deposit (FD). It is a better option than losing all your capital if the company defaults.

·         You must also check the end use of the money. If it goes towards expansion, it should be a safe bet. But, if the company is going to use your hard earned money to run day to day operations, you might be in trouble.

The company FD can beat inflation and give you good returns, but the inherent risks are high too. Your investment should match your risk profile. If your aim is to preserve capital, it might be a better idea to stick to the security of bank fixed deposits.