scorecardresearchAll you need to know: What are corporate deposits?

All you need to know: What are corporate deposits?

Updated: 18 Apr 2022, 08:57 AM IST

Fixed deposits are popular among conservative investors. Like banks, a number of corporations and NBFCs also offer fixed tenure deposits at a predefined rate of interest. These deposits are known as Company Fixed Deposit. Let’s explain more on this

Company Fixed Deposit (corporate FD) is a term deposit that is held over a fixed period of time at a predefined rate of interest.

Company Fixed Deposit (corporate FD) is a term deposit that is held over a fixed period of time at a predefined rate of interest.

Company Fixed Deposit (corporate FD) is a term deposit that is held over a fixed period of time at a predefined rate of interest. Company Fixed Deposits are offered by Financial and Non-Banking financial companies (NBFCs). The maturities of various company fixed deposits can range from a few months to a few years.

You deposit money in a corporate deposit and earn interest on it. This is it. They get a better interest from fixed deposits than the banks give.

Who should invest?

If you want to save for a future expense, company fixed deposits can provide you with a suitable investment alternative. However, the DICGC (deposit insurance up to 5 lakh provided only for bank FDs) does not cover corporate FDs.

In order to address this problem, make sure that the company's basic principles are solid and its credit rating is good. If the credit rating of respectable agencies is less than average, you have to consider putting your money back and seeking other reliable companies.

It is recommended to invest in a AAA or equivalent high-rated corporate deposit. It signifies the highest safety regarding the payment of interest and the principal. As you go lower in the rating chart, the degree of safety reduces.

Why should you invest in corporate deposits?

Corporate fixed deposits are preferable to bank FDs since their interest rate is substantially greater. The difference in interest rates between conventional bank FDs and company fixed deposits is usually between 1 percent and 3 percent.

This apparently little variation can have a significant long-term influence on your corpus in the long run. Moreover, fixed deposits are typically lowered and the payment of the interest is a little more flexible.

In addition, in the case of an emergency, a corporate fixed deposit can be used to make use of the lending facility in similar ways to bank FDs. The amount sanctioned may vary from financial institution to financial institution. Usually, it can go as high as 75 percent of the fixed deposit amount.

How to choose the best company fixed deposits?

You can choose the one that offers the highest interest rate if you plan to opt for company fixed deposits. But this is not an optimal strategy. To select the best corporate fixed deposit, one has to consider several crucial factors:

Check the company’s background

It’s an intelligent idea to look into the history of the company you’re planning to start an FD with. A respectable company with a lengthy history of profitability and a solid track record of satisfied clients is a secure investment. The internet makes it more convenient for investors to browse the websites and compare their choices on the financial institutions before zeroing in on them.

The repayment history of the company is crucial

The FD market has recently become very competitive. In the past, firms have failed in paying because of the attraction of high-interest rates. Or, payments were not received by depositors on time. Look for companies that reimburse fixed deposits in due time and pay regular interest.

Credit rating of the company

Popular credit rating agencies like ICRA and CRISIL are provided with a 14-point system for assessing an undertaking's fixed deposit risk. The better the grade, the safer the investment will be. In order to conclude your investment option, you can measure the stability of a fixed deposit with its rating and even compare similar products.

What are the benefits of Corporate Fixed Deposits?

Flexibility of tenure

Similar to bank FDs, corporate FDs also provide tenure flexibility that can be invested for 12 to 60 months. You can thus invest for one year if you save for a short-term goal. You can invest for five years if you want to develop a decent corpus.

Assured returns

As we learned before, FDs from leading credit rating agencies have higher ratings. CRISIL's FAAA/Stable rating and MAAA/Stable rating are the main companies accepting corporate deposits. These are seen in terms of prompt payment of capital and interest as being one of the best safety ratings in the sector. In case of fluctuations due to market changes, a corporation with a high credit rating can offer secure returns on its investment.

Higher interest rates

Compared to Bank FD rates, corporate FD rates are higher. Senior citizens who rely on a fixed deposit after retirement to pay their living expenses can benefit from this assured income.

Senior folks can benefit from 0.25% of additional benefits over and above these interest rates. So, if a person invests for less than 2 years with Bajaj Finserv, he will earn, say, an interest rate of 6.10%. The rate would be 6.35 per cent for a senior citizen.

Senior people who rely on a fixed deposit after retirement for their living needs can benefit from this stable income.

What is the Eligibility Criteria for Corporate FD?

Listed below are the individuals and group enterprises who are eligible to apply for a company FD:

  1. Individuals (Residents and Non-Resident Indians)
  2. Members of Hindu Undivided Family (HUF)
  3. Clubs
  4. Corporates
  5. Association
  6. Societies
  7. Educational Institutions
  8. Partnership Companies
  9. Cooperatives

Documents are required for Corporate FD

The following documents are required by individuals to open a corporate FD:

  1. Voter ID Card
  2. Ration Card
  3. Passport
  4. Driver's Licence
  5. Aadhaar Card
  6. PAN Card
  7. MGNREGA Job Card
  8. Valid Employee’s ID
  9. Government-validated address proof
  10. Two Colour Passport-sized photographs

Tax implications

The corporate income interest is taxable in accordance with your income tax bracket. That implies you pay 30 per cent tax on the interest generated on corporate deposits if you fall in the 30 percent tax bracket.

Under the Income Tax Act, TDS is deducted if the interest earned by the company FD in a financial year is greater than Rs. 5,000. By submitting Form 15G or Form 15H to a financial institution or non-banking institution (for seniors) you may avoid paying for TDS.

In India, the preferred sort of investment has always been fixed deposits. They were the all-inclusive solution from saving for a trip to saving for retirement. You have an alternative of fixed deposits if you’re worried about the dropping bank interest rates.

So if you have a financial goal that needs to be achieved within 1 to 5 years, invest in a corporate Fixed Deposit. It provides you with the protection of a fixed-income instrument and also provides a higher return than the bank FDs.


First Published: 18 Apr 2022, 07:44 AM IST