Do Corporate Fixed Deposits Give the Best Return?

Do Corporate Fixed Deposits Give the Best Return?

Fixed deposits are one the most popular form of investment among Indian households. This is because they are easily understood by anyone. Everyone in India knows how fixed deposits work. You invest some money in a bank and gain interest in it.

Times have changed now. Bank FDs don’t offer so high-interest rate. So, in the last few years, people have started investing in Corporate FDs. This is because they give better returns when compared to bank fixed deposits.

What is a Corporate Fixed Deposit?

The fixed deposits offered by companies, NBFCS and other financial institutions are defined as Corporate Fixed Deposits. The interest rate offered by them is higher than that offered by the bank fixed deposits. They are a bit risky as compared to bank fixed deposits.

So, you can check the ratings given by rating agencies like CRISIL, CARE, ICRA etc. Corporate Fixed deposits with ratings of AAA or equivalent can be considered good to invest in. Corporate fixed deposits with ratings lower than that are a bit risky and shall be avoided.

Corporate Fixed deposits are not covered by DICGC like bank fixed deposits. The tenure of corporate fixed deposits ranges from 6 months to 5 years.

Features of a Corporate Fixed Deposit

1. Easy Liquidity: It’s easy to liquidate corporate fixed deposits.
2. Rated by Agencies: Ratings are provided to corporate fixed deposits by credit rating agencies like ICRA, CRISIL, CARE etc. The ratings determine the safety and risk of default involved in the deposits.
3. Interest Payouts: Corporate deposits are cumulative as well as non-cumulative. In cumulative FDs, your interest in reinvested and you get the benefit of compounding. Here you receive the full amount with interest at maturity. Whereas in non-cumulative FDs you get an option to receive interest payouts at regular intervals.
4. Higher Interest Rates: Corporate Fixed deposits offer higher interest rates as compared to bank fixed deposits. This is the main reason why people invest in it.
5. Premature Withdrawal Facility: The companies allow premature withdrawal on your deposits in case of emergency. But this premature withdrawal comes with a penalty which can be up to 2%. But some corporate deposits come with a lock-in period of 3 months wherein you cannot withdraw the money.
6. Loan Against FD: You can also avail of a loan against Corporate Fixed Deposit. This option is available in both cumulative as well as non-cumulative Fixed deposits.
7. Taxable Interest Income: The interest income you earn on corporate fixed deposits is taxable. It is taxed as per the tax slab in which you fall on the basis of your earnings.

Do the Corporate Fixed Deposits Offer the Best Returns?

Corporate FDs are becoming popular as they offer higher interest as compared to bank FDs. Let’s understand why they are considered to be offering the best returns:

1. The interest rate they offer is generally higher by 2-4% as compared to bank FDs. That is the reason they are considered to offer better returns as compared to Fixed Deposits.
2. They are not fluctuated by markets. So, the ups and downs in markets won’t have any effect on your returns from corporate FDs. You will receive the interest at the same rate as pre-determined.
3. Senior citizens are offered higher returns than the normal FD rates. The interest offered