Company or Corporate fixed deposits are similar to bank FDs, where depositors put their money in the hands of the issuing company rather than the banks. Company fixed deposits may provide decent returns that are higher than bank FDs, although with moderate risks, and tenures typically range from 12 to 120 months. Investors seeking alternative investment instruments, particularly those that do not require a strong risk appetite, could consider investing in slightly riskier company FDs after practising careful research and risk analysis. But, if you're trying to invest in a company FD, here are the top ten companies currently offering the best returns.
Similarities between bank FDs and company FDs
Several companies and NBFCs, like banks, are permitted to accept deposits for a set period of time at a set interest rate. Corporate Fixed Deposits are a form of deposit like bank FDs that provide the security of assured returns and the freedom to select the term. Furthermore, corporate FDs offer a higher rate of interest than bank FDs. Now consider the following similarities between corporate FDs and bank FDs:
- One of the most attractive facets of investing in corporate Fixed Deposits is that, like bank Fixed Deposits, they offer a promised return. Furthermore, you will know the precise amount you will earn at maturity at the time of investment. This one significant benefit allows you to make more assured financial dealings in the potential.
- Many corporate Fixed Deposits, like most bank deposits, pay a marginally higher interest rate to senior citizens. This is an extra benefit for senior citizens who are elderly who rely on Fixed Deposit returns for retirement benefit.
- A corporate Fixed Deposit generally has a maturity period of one to five years. You will have the option of selecting any duration within the array. The interest rate, on the other hand, would vary according to the period, i.e., the longer the tenure, the better the returns in terms of interest rate.
Why you choose corporate FDs over bank FDs?
As an investor you might be now thinking that why investing in corporate FDs over bank FDs are a good bet. The reasons are discussed below:
Interest rate: Corporate FDs pay higher interest rates than bank FDs, ranging from 4.3 to 9%, which is significantly higher than regular bank FDs, which currently range from 5 to 6%. Senior citizens are also eligible to get higher interest rates from corporate FDs.
Credit worthiness: Credit rating firms, such as CRISIL, ICRA, and CARE, determine the credit scores of issuing firms as they release corporate FDs. Credit scores, on the other side, are not valid for bank FDs.
Interest payout frequency: Investors can select from a variety of interest payment periods, including monthly, quarterly, half-yearly, annual, and cumulative. This alternative provides investors with a regular source of income to create wealth.
Penalty: All Fixed Deposits must have a minimum penalty period of three months, according to RBI guideline Therefore, if you withdraw your corpus within the first three months, you will be charged an early withdrawal penalty. Hence, when it comes to corporate FDs they have a shorter penalty period than bank FDs.
Cons of corporate FDs
Before you consider investing the Corporate FDs market, weigh the cons listed below:
Tenure: Banks deliver a variety of deposit tenure, starting from 7 days only. A corporate FD, on the other side, will last anywhere from a year to ten years.
Withdrawal: Withdrawing from a bank FD is simple, whereas withdrawing from a corporate FD may put you in struggle.
Insurance cover benefit: Bank deposits up to Rs 5 lakh are covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC). The same is not applicable to corporate FDs.
Risk: Since corporate FDs are unsecured, they carry a higher risk compared to bank FDs. Thus, investing in companies with high credit scores is a good way to reduce risk.
Tips to choose a good corporate FD scheme
- Skip the Company Deposit Schemes that aren't rated by rating agencies. RBI also made it obligatory for NBFCs to have a "A" score in order to allow public deposits. Further, only AA+ or AAA schemes can be considered for investment.
- Choose the corporation with a better track record within a specified rating grade.
- If you've settled on a company, look for the schemes that have shown the best results. If you require regular income, cumulative schemes can be favoured over regular income options since the interest received is automatically reinvested, leading to higher returns.
- It is safer to make a shorter deposit for an instance of 3 years. This will allow you to track the company's performance and service, and also you can withdraw the funds for covering any unwanted crisis.
- Check out the company's operational efficiency. You should stop investing in firms that do not have adequate service for the depositors.
TDS will be withheld if the interest received on a corporate FD in a financial year crosses Rs.5,000, as per the Income Tax Act. By submitting Form 15G (or Form 15H for senior citizens) to your bank or non-banking financial institution, you avoid TDS. These deposits are exempt from claiming tax benefits. Bank FDs are favoured as tax-saving FDs because they usually have a five-year lock-in term and enable taxpayers to take advantage of Section 80C.
Who should invest in corporate FDs?
Corporate fixed deposits can be a decent investment alternative if you have a short-term financial goal. Corporate FDs, on the other hand, are not covered by the DICGC (which only covers bank FDs with deposit insurance of up to Rs 5 lakhs. To alleviate this fear, make sure the company's core principles are stable and the company has a decent credit record. If a company's credit rating is below standard, you should think twice about investing your money there and check for other trustworthy options. Investing in a high-rated corporate deposit with AA or AAA rating can be a perfect choice for investors with moderate-risk attitude. Depositors must verify the credit scores of company FDs and invest only in companies with AAA, AA, and AA+ ratings from organisations such as Crisil, ICRA, CARE, and others. Top-rated company FDs, on the other hand, can be used in combination for portfolio diversification to achieve better returns than bank FDs. Depositors must also be mindful that, like bank FDs, company FD returns are entirely taxable based on the investor's tax bracket.
Corporate FD Rates
|Corporates||Tenure||ROI in %||Credit Rating (as on 12 March, 21)|
|Hawkins Cooker FD Scheme||12 to 36||8.5 to 9||MAA/Stable by ICRA|
|Shriram City Union Finance||12 to 60||7.25 to 8.09||MAA+/Stable by ICRA and tAA by Ind-Ra|
|Shriram Transport Finance||12 to 60||7.25 to 8.09||FAAA/Negative by CRISIL,MAA+/Stable by ICRA,tAA+/Stable by Ind-Ra|
|HUDCO||12 to 60||7 to 7.5||MAAA/Stable by ICRA, AAA by CARE,tAAA by Ind-Ra|
|Bajaj Finance||12 to 60||6.15 to 7.25||FAAA/stable by CRISIL and MAAA/stable by ICRA|
|PNB Housing Finance||12 to 120||5.9 to 6.7||CRISIL FAA+/Negative, AA/stable by CARE|
|ICICI Home Finance||12 to 120||4.3 to 6.45||FAAA/Stable by CRISIL, MAAA/Stable by ICRA and AAA by CARE|
|HDFC||1 to 5 year||5.7 to 6.20||FAAA/Stable by CRISIL, MAAA/Stable by ICRA|
|Sundaram Finance||12 to 36||5.75 to 6.25||FAAA/Stable by CRISIL|
|Mahindra Finance||12 to 60||5.7 to 6.45||FAAA/Stable by CRISIL|