India’s fixed deposits are not an ideal investment option for new investors. Fixed deposits have been a popular investment instrument in India for earning fixed and guaranteed returns on savings, but there are several other options you should consider before opening a fixed deposit account or making a large contribution towards one.
Corporate fixed deposits (CFDs) are one of the safest investment options you can find in India. They are used to invest in a broad range of stocks, bonds, shares and other financial instruments. If you are looking for stable interest rates and are willing to bear moderate risk on your investment, then you can find a good alternative in corporate FDs. Here’s all you need to know about how corporate FDs function and the advantages and risks involved.
What are Corporate FDs?
These fixed deposits can be invested in a wide range of instruments such as stocks and mutual funds. Like any deposit, there are fees attached to them but they also offer guaranteed returns in line with their ratings. If you don’t like risk you can invest in FDs which offer higher return on investments than other fixed deposits at the pre-defined rate of interest.
Salient features of corporate FDs
No Volatility in Returns
Investing in corporate FDs is a great way to invest your money in the stock market. You get assured returns with low volatility and don’t need to worry about the market indices, which can fluctuate on the stock exchange over the tenure of an investment.
With a fixed income, you are guaranteed to receive a set amount of money every month. You don’t need to worry about fluctuations in the market because you can plan and forecast your future finances.
Higher interest rates for senior citizens
If you are retired, you might enjoy higher interest rates on your personal finance products. For example, personal loans and auto loans typically have more favorable rates for seniors. After all, seniors consume less energy and can afford to cut back on spending money on necessities like running water and electricity.
If you have a corporate FD, income from interest is taxable and calculated using your tax slab rate. Starting from FY 2020-21, if your interest income exceeds Rs. 5000, you will be required to pay TDS at 10% on your corporate FD.
Because a company can be downgraded by the MCA, when you invest in corporate FDs your assets will remain safe. Corporates however, are not allowed to declare bankruptcy. Hence, if an NPO defaults on its payments and goes bankrupt, their assets will be protected by the government and their customers can take advantage of that.
Before investing in a corporate FD, you must check the rating of the company. In India, credit rating agencies such as ICRA and CRISIL evaluate and assess the performance and history of adhering to MCA and RBI regulations. The score is determined by assigning ratings based on financial ratios such as return on equity and quality of earnings relative to debt. A rating of BBB is required for a company to collect deposits from investors.
Pre-closure of deposits
While pre-closure is typically allowed after six months of investment, a penalty may be imposed when the investment matures. The amount of the penalty will depend on the length of time between allocation and maturity.
The bottom line
Our corporate FDs offer investors peace of mind and well-deserved returns. With flexible tenures, guaranteed returns, and investment protection of a fixed-income instrument, our corporate FDs are excellent tools for growing your money.