Fixed deposits are the easiest financial instruments to understand. It makes them a favourite among most Indians. Almost everyone is familiar with them. You deposit a sum in your bank account and get interest on it. 

However, there is a term called corporate FD, which is becoming increasingly popular. They provide a higher return than what the banks give on fixed deposits. Corporate Fixed Deposits (FDs) in India can be a lucrative area for investors aiming to earn more FD Interest Rates than regular bank FDs. 

Reputed companies offer corporate FDs as an alternative investment option. Below, we provide answers to all your questions about corporate FDs, such as their definition, advantages, who can invest, and so on. 

What Is A Corporate FD?

Company fixed deposits or corporate deposits are term deposits where you deposit your money for a defined period at a constant instant rate. Such FDs are available with NBFCs and other financial institutions. They yield a higher rate of interest than an ordinary bank fixed deposit. Company FDs have maturities of months or a few years.

Various corporate fixed deposits have varying corporate FD interest rates depending on the company and tenure you choose. Some companies also offer a slightly higher interest rate for women and senior citizen investors.

Prevailing Corporate FD Interest Rates

Let’s have a look at some of the prevailing corporate fixed deposit interest rates offered by some of the popular companies:

Who Should Invest In Corporate FD?

Individuals can choose corporate fixed deposits to save for an overseas trip or to meet any other financial obligation. Corporate FDs carry higher rates for longer terms. Hence, investors who can invest for a longer period and do not mind having their funds invested for a long duration can find corporate FDs appropriate.

Nevertheless, the DICGC (deposit insurance of ₹5 lakh available only for Bank FDs) does not apply to corporate FDs. To address this fear, it is therefore important to ensure that the company’s fundamentals are robust and the firm enjoys a good credit rating. 

If the credit rating given by credible agencies indicates a below-average position, you must analyse the decision to invest in that company and search for other reliable companies. The most suitable investment is an AAA or equivalent-rated corporate deposit. It points to maximum safety regarding the payment of interest and capital. Lower in the rating chart, safety decreases.

So, investors need to evaluate their risk tolerance and investment goals using due diligence before considering corporate FDs. As a result, an individual may consult a financial planner to help choose the ideal corporate FD.

Reasons To Invest In Corporate Fixed Deposits

Investing in corporate FDs can be a viable strategy for some investors because of several possible benefits. But it is necessary to emphasize that along with these advantages, there are also related risks.

1. Higher Interest Rates:

Corporate fixed deposits have an advantage over bank FDs since the interest rate is substantially higher in the case of the former. The average interest-rate differentiation between conventional Bank FDs and corporate fixed deposits is about 1% to 3%. This seemingly minor rate of interest can make a difference that is quite notable in the long run for your corpus.

2. Diversification of Portfolio:

You can have Corporate FDs to enable diversification. Diversification through different asset classes helps spread the risk and lessens the effect of failings in one investment.

3. Flexible Tenure Options:

Tenure options are typically available with corporate FDs. Investors have the option of selecting a term that satisfies their financial objectives, from short-term to long-term.

4. Regular Interest Payments:

Corporate FDs usually give the possibility of receiving payments regularly (interest), which is useful for investors who need a certain income. 

5. Cumulative and Non-Cumulative Options:

Investors can select from cumulative or non-cumulative interest. Cumulative FDs automatically reinvest the interest, while non-cumulative FDs incur regular payouts.

6. Credit Ratings:

Most credit rating agencies rate well-known companies with Corporate FDs. One can understand the financial stability of this firm by checking its rating in relation to credit.

7. Lock-in Period:

It is not uncommon for corporate FDs to have a lock-in period that serves the purpose of making sure investor’s funds remain invested for a certain time frame.

These benefits, however, should not outweigh the risks that come with them. The government does not support corporate FDs, and there is a chance of default in the event that the issuing company gets into difficulties. 

Investors should take the time to study companies, evaluate their risk tolerance, and diversify their investments so that risks can be effectively managed. 

How To Apply For Corporate FD?

• Visit the website of the FD offering company or NBFC.
• If necessary, register on the website. This could include making available a list of basic information and setting up login details.
• Look through the various FD schemes available and select the one that meets your investment standards.
• Use the online application form to provide clearly stated details. This could be anything ranging from personal data and contact details to the amount invested.
• Upload the necessary Know Your Customer (KYC) documents. Usually, this includes a recent passport photo, identity proof, address proof, and a specimen signature.
• Examine the terms and conditions of the FD scheme carefully. Understand the rates of interest, period of repayment, premature withdrawal penalties, and other such details.
• Pay the FD online. The company will offer a number of payment methods like net banking, debit or credit cards, or other modes of online payment.
• When the payment goes through successfully, you should receive a confirmation of FD for your investment. This could be forwarded to your registered email.

Tax Implications on Corporate Deposits

Interests from corporate deposits are taxable in accordance with the rate of income tax bracket you belong to. What this means is that if you are in the 30% tax bracket, you pay 30% tax on interest derived from corporate deposits. 

As per the Income Tax legislation, if interest accrued in a fiscal year on corporate FD is more than Rs.5000, then there will be a TDS deduction. One can fill out Form 15G (or Form 15H in the case of senior citizens) with a bank or non-banking financial institution to avoid TDS.

Conclusion

A fixed deposit is provided only by banks. Corporate or company fixed deposits refer to investment tools offered by non-banking financial institutions and firms. On the other hand, corporate FD rates are higher than FD interest rates by bank. Yet, corporate FDs are uninsured liabilities and, hence, do not enjoy any deposit insurance coverage. As an investor, you must do proper research, take the necessary steps, and choose the right Corporate FD. Also, you can reach out to Wint Wealth, the one-stop solution for all your investment needs.