Company fixed deposits (FDs) are gaining popularity owing to the higher returns that bank FDs promise. However, the interest income on these FDs is subject to the same set of taxes as their bank counterparts. Since the interest on corporate FDs is full taxable as per the income tax slab rates in that financial year, it makes sense to factor in the post-tax returns too.
Unlike the bank FDs where there is minimum risk of default, there is too much risk associated with corporate FDs given the tumultuous nature of some businesses. That’s why you must lessen the risk factor by choosing issuers with high ratings.
An AA rating indicates that the degree of safety regarding timely payment is strong; the higher the rating, the better is the issuer’s ability to bear the risk. Apart, bank FDs allow premature redemption in lieu of minimal charges as penalties. The terms and conditions for premature redemption of corporate FDs may be exacting and that is why you must be aware of them before investing in them.
|The highest interest rate (monthly frequency) in %
|Tenure (in months)
|Shriram Transport Finance
|Shriram City Union Finance
|PNB Housing Finance
|ICICI Home Finance
|LIC Housing Finance
|Sundaram Home Finance
All these issuers give an additional 0.25 per cent interest to their senior citizens barring Shriram Transport and Shriram City Union Finance which gives 0.30 per cent, whereas Sundaram Home Finance and Sundaram Finance give 0.50 per cent interest rates.
With banks now hiking their FD rates, investors are now gradually reconsidering their interest in parking their money with them. Banks including the Central Bank of India and UCO Bank revised their interest rates following the Reserve Bank of India’s decision to keep monetary policy unchanged.
Most banks including the State Bank of India, Axis Bank, Kotak Mahindra Bank, HDFC Bank, Fincare Small Finance Bank then followed suit and have recently prepped up their interest rate offerings to their customers. These interest rates will, however, be subject to different tenures ranging between a week and 10 years.
Barring senior citizens who park their retirement savings for stability, not many people are showing interest to put their money with banks for long tenures. The falling FD rates have been hailed as a culprit as millennials complain that they are not enough to beat inflation. The post-tax returns have also been found to be negative in many instances, thus, forcing both the salaried and self-employed to shift their earnings to alternative investment options like mutual funds, public provident fund deposits, stocks, exchange-traded funds, and more.