Reasons Why Should Select Corporate FDs Over Traditional FDs
In India, traditional fixed deposits are often the very first savings and investment instrument that most people start their financial journey with. FDs are very popular because they guarantee safety and growth without jeopardising the capital amount as no risks are taken with the money.
However, there are very few people who know that there is another kind of FD that you can invest in, as an individual, and that is the corporate FD.
What is a corporate FD and did you know that they are far more beneficial than even traditional FDs? Let's find out more about them.
While traditional FDs are offered by banks and even Non-Banking Financial Companies, corporate FDs are offered by corporate houses. Also called Non-Convertible Debentures (NCD), corporates offer these FDs as a means of raising funds for their own business expansion or maintenance, but they continue to offer all the benefits of traditional FDs. So, what makes them stand out from traditional FDs?
Here are some of the major reasons why corporate FDs are better than traditional FDs:
- The defining factor of corporate FDs is that their interest rate is much higher than that of traditional FDs. Many corporate FDs offer senior citizens an additional rate of interest, just like FDs offered by banks.
- There are no credit ratings for FDs offered by banks whereas corporate FDs have credit ratings by independent rating agencies which tell you how reliable these FDs are.
- You can get a steady source of income from your corporate FD on a more flexible scale than from a traditional FD. Corporate FDs offer you interest payout options that range from monthly, quarterly, and half-yearly to annually and cumulative. The latter is when you get all your accumulated interest paid out at the time of maturity only.
- The tenure of corporate FDs can range from one year and go up to 10 years so this is good for those who are looking for long-term investment plans where their money will be safe but will continue to accrue interest over time.
- There are a wide range of corporate FDs to choose from which are offered by leading and reputed corporate houses.
- Premature withdrawal is allowed for corporate FDs, just like for traditional FDs, without any restrictions.
- Liquidity is also easy with corporate FDs.
Corporate FDs can be opened by anyone who is an Indian resident. It can also be opened by other entities such as Hindu Undivided Families (HUFs), corporates, clubs, associations, societies, and partnership firms.
How to Choose a Good Corporate FD
Before you start investing in a corporate FD, it would be wise to first make a list of all the FDs that are offered by reputed corporates. Compare their credit ratings. Next, compare the interest rates offered by different corporates. After that, compare the interest rates offered by the same corporate but within different tenures. Use an FD online calculator, which is free and easy to use, to calculate how much your interest amount and maturity amount will be.
Choose the right tenure and right corporate based on all these factors and you are sure to make the right choice with regard to the corporate FD that will give you the highest returns and maximum safety as well.
FAQs on Why You Should Select Corporate FD
- What are the benefits of Corporate fixed deposits?
Corporate Fixed Deposits provide higher returns than traditional banking institutions at the end of the deposit term due to their higher interest rates. They have flexible terms and provide different ways to pay interest. Seniors are eligible for even higher interest rates.
- What are corporate fixed deposits?
Corporate companies accept funds from customers in the form of fixed-term deposits that promise fixed returns. They offer higher interest rates than conventional banks do.
- Are corporate fixed deposits secure?
The Reserve Bank of India or the Ministry of Corporate Affairs have strict rules and regulations that must be followed by all businesses that offer fixed deposits (MCA). In India, only a few NBFCs are permitted to accept deposits from retail investors. Therefore, investing in corporate fixed deposits carries a minimum amount of risk for investors. Although the risk is lower than with bank fixed deposits, corporate fixed deposits are secure, but not for a longer period of time.
- How can you tell if a corporate fixed deposit is the best option?
Corporates are listed or rated in accordance with the following scales: AAA, AA, and BB. These ratings are derived from the companies' prior financial performance. These rankings can be used to identify the top fixed deposit provider. The best rating a corporation can receive is AAA.
- How are company fixed deposits purchased?
You can purchase fixed deposits from the company from brokerage firms or authorised dealers. You will be charged a fee for their assistance acquiring the firm's fixed deposit.
- Can Corporate fixed deposits be booked online?
Yes, you can book Corporate fixed deposits online.
- Can I withdraw my corporate deposit prematurely?
Yes, you can withdraw your corporate fixed deposits prematurely by submitting a cancelled check, the original FDR certificate signed by all holders, and the original FDR certificate. You will also need to submit a letter requesting an early withdrawal with justification.
- Are fixed deposits from the bank completely safe?
No, due to their high risk and reliance on the market, bank fixed deposits are not completely safe.
- Is the interest from Corporate fixed deposits taxable?
Yes, the interest from Corporate fixed deposits must be taxed according to your tax bracket. In India, a business deducts TDS at a rate of 7.5% from corporate fixed deposit interest if it surpasses Rs.5,000. Any investment you might make in the market will typically go like that. However, if Form 15G is submitted by individuals and Form 15H by senior citizens, there will be no TDS deduction.
- What is the corporate fixed deposit lock-in period minimum?
You can choose to make a premature withdrawal if you require the money before the fixed deposit's tenure expires. However, the majority of businesses have a 3- to 6-month lock-in period for corporate deposits during which you cannot withdraw your money.
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