Are Company FDs Safe?
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The safety of a company FD depends on the credibility and stability of the company itself.
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Corporate Fixed Deposit
By Bajaj Broking Team
February 14, 2025
6 mins read
Share Market
We are sure that most of us are aware of the term ‘Fixed Deposit’. A Corporate Fixed Deposit, also known as a Company Term or Fixed Deposit is an FD offered by finance, housing finance or other Non-Banking Financial Companies. With the help of a company or corporate FD, businesses can raise funds from the public. For investors, FDs provided an opportunity to generate greater returns via higher interest rates when compared to regular bank FDs.
However, it is important that before investing, you credit ratings of the company. These ratings are usually given by agencies like ICRA, CARE, and CRISIL since they are responsible for assessing the credibility of these companies.
Why Should You Invest in a Company Fixed Deposit?
As we have already discussed above, a Company FD, which is also known as a Corporate FD is an FD offered by companies finance companies and NBFCs or Non-Banking Financial Companies. The FDs help these companies raise funds from the public and let investors earn higher returns compared to regular bank FDs.
When compared to traditional bank FDs, corporate or company fixed deposits offer better interest rates. Of course, these rates can fluctuate depending on various factors, like changes in the RBI’s repo rate.
We understand that higher interest rates are tempting, but it is crucial that investors, before investing gauge the credibility of the issuer. Companies that have low credibility or stability ratings could prove to be risky to invest in as the problem of delayed payments or defaults could arise.
This is why to ensure that your investment stays safe, invest with companies having a high stability rating that has been given to them by reputed credit rating agencies like CRISIL, ICRA, and CARE.
Company Fixed Deposit Interest Rates
Factors to Consider When Choosing the Best Corporate FD
If you are thinking of investing in a Company Fixed Deposit (FD) you must consider certain factors before you decide to do so. Here are some of those factors:
1. It is important to check the credit rating of the company you are planning to invest in. Agencies like CRISIL, ICRA, and CARE are responsible for assessing how safe and reliable these companies are where corporate FDs are concerned. When a company has a higher rating it means that it poses a lower risk of delays or defaults.
2. When it comes to corporate FDs, every company has its own rules where the minimum and maximum deposit amounts are concerned. Remember to check these and see if they work for your financial goals before you invest with the company.
3. Checking the interest rates should also be something you should do before investing in a corporate FD with a company. This is particularly where NBFCs are concerned. Some interest rates would provide you with better returns than others and this is why it is important to check on them before investing.
Advantages of Company Fixed Deposits
There are quite a few advantages to investing in corporate FDs. Here is a list of some of them:
Corporate or company FDs offer a higher interest rate when compared to traditional bank FDs which can translate to higher returns for investors.
When it comes to the payment of interest, investors can choose from monthly, quarterly, half-yearly, and yearly payouts.
Most businesses and companies offering corporate or company FDs are graded by independent agencies like ICRA, CRISIL, and CARE, which provides investors with several options to choose from.
Most company FDs provide investors with easy loans of up to 75% of the maturity amount. Even if investors decide to withdraw early, a nominal penalty amount is charged.
Key Characteristics of Top Company FDs
Here is a look at some of the characteristics and features of the FDs from top companies.
Mahindra Finance FD
Higher interest rates than most other companies.
Senior citizens get an extra 0.25% per year on savings up to ₹1 crore.
The company has been rated FAA by CRISIL which means that it provides high-interest payment safety to investors.
Interest is paid yearly, biannually, or quarterly through NEFT or NACH.
The compounded interest of the FD is deducted from the tax bill.
LIC Housing Finance FD
The minimum deposit amount for the FD stands at ₹20,000 for yearly deposits.
The interest for cumulative deposits is compounded annually.
Extra instalments for yearly options are allowed but in multiples of ₹1,000.
Kerala Transport Development Corporation FD
This is one of the least risky corporate FDs as its safety has been guaranteed by the Kerala government.
Dispositors have the option of renewing the FD under this program.
This FD helps senior citizens receive an extra 0.25% interest advantage.
The very first deposit of the FD has to be ₹10,000.
Shriram City Finance FD
With the help of this FD, investors can choose from different withdrawal choices with a variable tenure.
The initial deposit for this FD stands at ₹5,000.
Investors can choose between cumulative and non-cumulative forms in this corporate FD.
Eligibility Criteria for Corporate Fixed Deposits
If you are looking to invest in a corporate FD, it is important to find out whether or not you are eligible to apply for one.
Indian citizens whether resident Indians or NRIs can both invest in corporate FDs.
Hindu Undivided Families (HUFS), Clubs, Corporations, Associations and Societies are also allowed to invest in corporate FDs.
Other than this, educational institutions, partnership firms and cooperatives can also apply for company FDs.
Documents Required for Opening a Corporate FD
To apply for the corporate FD, certain documents are required. These include:
Aadhaar Card
Voter Id
PAN card
Passport
Driver’s License
Ration card
Address proof validated by the government
2 colour passport-size photos
Tax Implications on Corporate Fixed Deposits
The interest that is earned through the corporate FD is taxable according to your tax bracket. For interest earned in a year from a corporate FD over ₹5,000 the TDS deducted is done as per the IT Act. If you want to prevent this TDS deduction, the FD holder must submit Form 15G or Form 15H, which is meant for senior citizens, to the bank or the NBFC.
Conclusion
No doubt investing in a corporate FD or company FD could prove to be beneficial for an investor. However, several factors need to be considered before doing this. From considering the credibility of the company to the TDS deductions, everything needs to be taken care of. This is why it is important to consider every aspect before you decide to take a deep dive into the world of corporate FDs.
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Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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Frequently Asked Questions
What is the Minimum Tenure for a Company FD?
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The tenure for a company FD depends on the company itself.
What are the Things to Keep in Mind While Choosing a Company Fixed Deposit?
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It is important to keep the credit rating of the company, the rules regarding the minimum and maximum deposit amounts of the company and the interest rates the company is offering should be kept in mind.
How to Apply for a Company FD?
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You can apply for a company FD either online or by contacting the company directly.
Can We Break a Corporate FD?
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Like bank FDs, company FDs can also be broken. However, this will also attract a nominal penalty.
When Can the Client Apply for Premature Corporate FD Withdrawal?
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This can be done after 3 months from the booking date.
What Are the Benefits of Investing in a Corporate FD?
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One of the main advantages of corporate FDs is that they offer higher interest rates, investors can choose interest payouts from annual, semi-annual, quarterly or monthly, and they also offer an easy loan of up to 75% of the maturity amount.
What Are the Risks Associated with Corporate FDs?
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The main risk associated with corporate FD is that of late or default payouts.
How to Compare Corporate FDs for Better Returns?
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This can be done by comparing the credit ratings of the companies offering FDs.
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