How Corporate FD is Different from Bank FD: All You Need to Know
Why should a person invest in fixed deposits over others? What makes corporate fixed deposits preferable to bank fixed deposits, or vice versa?
One of the safest investments that provides guaranteed and risk-free payments is a fixed deposit. Corporations also provide fixed deposits. They typically last for a shorter time than those offered by banks. If you are worried about the declining interest rates of bank fixed deposits, corporate fixed deposits offer an alternative.
In this article, we will explore in more detail what a corporate FD is, how it differs from bank FDs, and its advantages. We will also discuss the disadvantages of corporate foreign direct investments.
What is a Corporate Fixed Deposit?
Similar to banks, several companies and non-banking finance companies are allowed to receive deposits for a set duration at a set interest rate. These deposits are sometimes referred to as “corporate fixed loans.” They provide the security of guaranteed returns and the freedom to choose their tenure. Company FDs also offer a higher interest rate than bank FDs.
How Corporate FDs and Bank FDs are Similar to Each Other?
- Corporate fixed deposits offer a guaranteed return.
Corporate Fixed Deposits offer the security of a guaranteed return. This is one of its main benefits over bank Fixed Deposits. Consider the following scenario: You invest Rs. 1 lakh in a corporate FD, and the involved NBFC or company pledges to give a 7 percent interest rate annually. At the end of the year, you will receive Rs 1.07 lakh regardless of the behavior of the markets or how interest rates change.
The exact maturity amount that you will receive is also disclosed to you at the time of investing. This significant benefit increases the ability to create future financial plans.
- Higher rates for senior citizens.
Similar to the majority of bank deposits, corporate fixed deposits often provide older individuals with a higher interest rate.
This is a bonus for elderly people who are retired and rely on the returns from fixed deposits for income.
- Flexibility in selecting the tenure.
Corporate fixed deposit terms typically range from one to five years. You have the freedom to select any period in this range. As a result, if your goal is one year away, you should invest for one year. If it is 2.5 years away, you should set your tenure in that manner. The interest rate will vary. The longer the term, the greater the interest rate.
Is Corporate FD Riskier?
Due to the unsecured nature of company FDs, several investors are worried that they will lose money if the company they are investing in, goes bankrupt. It is crucial to remember that all NBFCs and businesses that accept deposits must abide by the rules and regulations established by the RBI and the Ministry of Corporate Affairs (MCA). Because of this, only a few NBFCs in India out of more than 10,000 are permitted to accept public deposits. By taking these steps, investors’ exposure to risk when investing in corporate fixed deposits is minimized.
Before Investing: Things to Think About
Below are some of the crucial factors you should think about before investing in a corporate deposit, or FD:
- Choose the appropriate response: It is crucial to select a plan that meets your needs perfectly.
- It is crucial to compare several corporate deposits and FD plans before investing.
- Prioritise your needs and evaluate them before investing in a plan.
The RBI Guidelines for NBFCs to Adhere to While Launching Fixed Deposits
A fixed deposit has a minimum tenure of one year and a maximum tenure of five years. The Reserve Bank of India has set a ceiling for the interest rate on fixed deposits that cannot be exceeded. This interest rate is occasionally modified by the RBI.
An NBFC follows the law to collect as many fixed deposits. It is permitted by law to collect FDs. However, this differs among NBFCs. An NBFC is required to provide the RBI with all pertinent information regarding fixed deposits. These are not permitted to continue rewarding their depositors with rewards or incentives.
Top Bank Fixed Deposits in India
Below is the list of top bank fixed deposits in India:
- HDFC Bank FD
- State Bank of India FD
- Canara Bank FD
- Axis Bank FD
Top Corporate Fixed Deposits in India:
The top corporate fixed deposits in India are listed below:
- Ansal housing and construction
- Ind Swift Ltd
- Surya Roshni Ltd
- Jindal Stainless Ltd
- Shri Ram
Conclusion
The goal of this article is to provide a thorough analysis of the various merits of both corporate and bank FDs. Investments in fixed deposits are safe and reliable. You can select the safer, lower-returning bank FDs or the higher-returning company FDs based on your investment objectives. If you want the ability to make early payments, there are other things to keep in mind. For example, the kind of tax benefits you wish to receive. Make the decision that is best for you by keeping all of these variables in mind.
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