Money

What are corporate fixed deposits?

Fixed deposits have been a preferred medium of savings for many generations to this day. Like banks, the Reserve Bank of India (RBI) also permits some companies and non-banking finance companies (NBFCs) to accept deposits for a fixed term and interest rate. These deposits are known as corporate fixed deposits. Corporate fixed deposits (FDs) are a great investment option if you aim to invest for capital security and fixed predictable returns. You can get regular income by opting for a regular payout option or accumulate your corpus through the cumulative option.

corporate fixed deposits

Here is everything you should know about corporate fixed deposits:

What are corporate fixed deposits?

Corporate FDs are term deposits where you invest money for a fixed duration at a fixed interest rate. Corporate FDs are offered by NBFCs and a few corporates. Generally, corporate FDs function like regular fixed deposits, but the former offers a higher interest rate and more flexibility in interest payments. Corporate FDs can have a lock-in of a few months or a few years.

Why should you invest in corporate FDs?

If you are a low-risk investor and want to invest for capital preservation rather than growth, then you can consider investing in a corporate FD.

Here are some of the top benefits of investing in corporate FDs:

  • Better interest rates: Corporate FDs fare better than regular bank FDs as they offer a significantly higher interest rate. The difference in interest rate between these two types of FDs ranges from 1% to 3% on average, which can have a seemingly sizable impact on your savings in the long term.
  • Secure from market interest rate fluctuations: Bank FD interest rates depend on several factors like interest rate movement set by the RBI. However, corporate FDs interest rates are pre-determined and not subject to market rate fluctuations. You get assured and higher returns than bank FDs.
  • Highly liquid: Corporate FDs qualify for loans. You can take a loan against your corporate FD up to 75% of the maturity amount. If you do not want to take a loan, you can opt for premature withdrawals by paying a nominal penalty.
  • Flexible features and interest payments: Corporate FDs have lower lock-in periods and are more flexible in interest payments. Companies allow you to take periodic interest payments – monthly, quarterly, and annually. This helps you create a stable income stream. If you do not want periodic payments, you can access your accumulated corpus at the expiry of the FD tenure.

Who should invest in a corporate fixed deposit?

If you are a low-risk, short-term investor, you can consider saving your money in a corporate fixed deposit. However, these FDs are not covered by any deposit insurance, unlike bank FDs. To overcome this drawback, ensure to conduct in-depth research before choosing the company or the NBFC. Choose a company with sound fundamentals, strong financials, and a good credit rating. It is ideal to choose corporate FDs of companies that have a AAA or equivalent credit rating.

Conclusion

You can use the Tata Capital Moneyfy app to start your corporate fixed deposit and earn attractive rates of interest. You can also use the Moneyfy app to invest in mutual funds.

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