What benefits can I get by investing in Corporate FDs?
The investment made by investors with companies with a specified interest rate for a fixed period is known as Company Fixed Deposit. NBFCs and other financial institutions also recognise such deposits. The maturities of different Corporate FDs will vary from a few months to a couple of years. Besides, Company Fixed Deposit is one of the most favoured investment options because it certainly offers a fixed return on investment.
Benefits of investing in Corporate FDs
1. Risk: Fixed deposits are the right choice for those who are hesitant about the capital market’s uncertainty and dangers since they are the safest investment option. Any shift in FD rates will affect only new investors.
2. Interest rate: The corporate interest rates on fixed deposits are higher than the Bank FDs. Also, corporate FDs offer higher payoffs, especially when compared with Bank FDs.
3. Liquidity: For Corporate FDs, with a lower lock-in time, you can enjoy greater liquidity than the Bank FDs.
4. Tenure: You can select Corporate FDs from several tenures, such as quarterly, weekly, annual, or half-yearly, according to your preference.
5. Support from credit agencies: Corporate FDs provide the advantage of reduced risks that are endorsed by reputed rating agencies. Such agencies are investigating whether these FDs are safe and secure. Upon evaluating the company’s financial stability, they conclude. The scores are regularly revised.
6. Additional benefits: Many companies provide their customers with extra perks when they renew their FD. Consequently, this marginally bumps up their profits. For example, NBFCs offer 0.10% additional interest on fixed deposit renewal.
7. Flexibility in payout: The payment of interest rates is flexible too. A retired person, for example, may opt for monthly interest payment, while a young adult may prefer to collect interest at maturity or the end of each year. But, unlike Bank FDs, corporate deposits offer multiple options.
Things to consider before investing in corporate FDs:
CRISIL rating:
Experts claim that it is better to test a company’s credit rating before investing in their fixed deposit. Note that a business with a good credit rating would typically pay your interest on time. For example, if a business deposit facility has CRISIL’s AA+/Negative rating, you can rest assured about the low risk and high-security factor.
Discretion:
A young investor would find the guaranteed high returns, low risk, and flexible tenures lucrative, but one must apply his/her judgement before investing in company FDs. There is nothing wrong with taking financial advice before investing in such instruments. Understanding terms & conditions, analysing the market, checking whether the business has a good credit rating are some of the precautionary measures that can guide a rookie investor not to face losses during the investment process. Additionally, you also need to understand which sector is providing better returns compared to other industrial sectors as well.
Conclusion:
Although there are various benefits of investing in a company FD, you need to be careful when you are investing for the first time. If you are vigilant about the different terms and conditions, you can get better returns than you would expect through company FDs.