Post COVID-19, the economy is struggling with ups and downs. The return on investment has also declined. Rates on bank fixed deposits (FDs) are now ranging from 5.1 to 5.7% for five-year terms. In reality, real returns on bank FDs have been negative in many circumstances. While the corporate FDs offers a high rate of interest compared to the commercial bank FDs. It ranges between 6-7 and in some cases, it goes up to 8%. While a greater rate of interest on deposits may be appealing, it may also come with more risk.
FDs in banks provide guaranteed returns since they are not tied to the market and are not impacted by it. Corporate FDs, on the other hand, are unaffected by market or interest rate swings. If a corporation offers a set interest rate, it remains constant regardless of market conditions or fluctuating interest rates.
Why corporate FDs?
There are a number of reasons why corporate FDs are better than commercial bank FDs in terms of return on investment.
Corporate FDs offers the best interest rates compared to the interest bank offers on FDs. Corporate FDs can determine the optimum match for a debt product when the investor requires better returns. Corporate FDs are unaffected by market performance or interest rate swings, which allow them to offer significantly higher returns on investment than banks.
The interest rate in corporate FDs are higher like banks offer to their senior citizens. Incorporate FDs, senior citizens get stability and appeal periodic money, which will make their old age life simpler. Furthermore, senior citizen interest rates are greater than bank schemes, making it a far more realistic alternative when investing in FDs.
Short-term investments offered by the corporate/NBFC FDs are one of the key advantages investors get with them. Corporate FDs are limited to five years, making them a suitable alternative for investors looking for significant returns in a short period of time. While the Bank FDs can last anywhere from a few months to a few years, which doesn't suit everyone looking for FDs for a short period of time.
When investing in corporate FDs, investors have the option of selecting a nominee, which provides them with a distinct benefit. If an investor has a large amount of money in a corporate Fixed Deposit and dies unexpectedly, the nominee can assume control of the account and receive all of the funds.
Things you should consider while Investing in corporate FDs
If you are investing a certain amount in the corporate FD, make sure you read and understand their conditions such as premature withdrawals, tenure and other things.
Also, make sure you compare, research and read carefully terms and conditions.
CARE (Credit Analysis and Research Limited), CRISIL (Credit Rating Information Services of India Limited), or ICRA (Investment Information and Credit Rating Agency of India Limited) are some rating agencies investors look after for comparison, analysis, and make the right decision.
These company ratings come in a variety of formats, including AAA, AA, BBB, and more. The highest grade, AAA, indicates that an investor will be able to locate a possible money hive after investing in a firm. This also allows investors to compare the company to others, and those with an AA or BBB rating should avoid investing.