How Do Corporate Fixed Deposits Work For Investors?

Smart investors seek opportunities that provide more than average returns before investing. Benefits of Investing in Corporate Fixed Deposits include higher interest rates, flexible tenures, and a relatively stable income, making them an attractive option for diversifying your investment portfolio. While equity is one such option, it comes with greater risk, and the next best alternative to it in the fixed-income market would be Corporate Fixed Deposit. Deciding whether to select corporate fixed deposits or not is quite challenging. However, in-depth knowledge of several aspects of it can certainly help you make logical decisions. This article will enlighten you on how to make appropriate decisions for your next investment. 

A corporate fixed deposit has better returns to offer you than a fixed deposit; learn about it to take the opportunity to make more than normal returns. 

Key Takeaways 

1. Prefixed returns have stability, as they are unaffected by market volatility.
2. The flexibility of the tenure ranges from 3 months to 5 years, decide on the investment amount and the various payout options and stay invested. 
3. The liquidity is better than demand for the real estate market, and loan facilities are offered for 75% of the principal amount.
4. The investments are graded with credit ratings from AAA to D, with AAA being the highly safe option and D being the defaulting one. (Of course, D is not sold to you.)
5. The premature withdrawal attracts penalties like others but depends on the issuer as to what percentage.
6. You can start with a minimum investment of INR 5,000 at a platform like GoldenPi 

Working of Corporate Fixed Deposit

Corporate or company fixed deposits are term deposits where the principal amount is deposited at a particular interest rate for a specific term that ranges from 12 months to 5 years (or even higher). Corporates commonly raise money through such deposits, but NBFCs are also permitted to raise it as long as the RBI allows them to do so. 

The regulatory laws for corporate fixed deposits come under Section 58A of the Companies Act, 1956. 

Key Offerings from Corporate Fixed Deposits

Here are some of the important offerings from Corporate FD for your reference.

Corporate fixed deposits offer returns on the grounds of high risk, which is comparatively less risky than investments in the stock market. Let us discover how you, as an investor, can benefit the most from the returns:

• Fixed Returns: Compared to other sources of investment returns, like stocks and cryptocurrencies, whose yields fluctuate based on market conditions, corporate fixed deposits remain unaffected by such external factors. The principal amount and interest are unharmed by the market fluctuations. Moreover, the freedom to choose the type of return is another highly important factor for investors in managing their finances.
• Flexibility: Flexibility is a key consideration for investors managing diverse sums of money over different time frames. Corporate fixed deposits offer an option more suited to meet their flexible requirements. For tenure ranging from as low as 3 months to longer periods, flexibility is also offered in principal amounts and payouts, making it a suitable option for investors. In the context of principal amounts, investors have the freedom to choose the amount they wish to invest, whether it’s a substantial sum or a more modest one. Regarding payouts, investors can opt for periodic interest payouts or choose to receive the entire principal along with interest at maturity.
• Liquidity: Having a running flow of cash is quite important for an investor. Investment options like real estate and government savings schemes with lock-in periods limit liquidity. Investors in such scenarios are on the better side of choosing corporate fixed deposits.

• Loan Facilities: Corporate Fixed Deposits allow better usage of investors’ money by providing loans of up to 75% of the total fixed deposit value. 

• Building Wealth: Building wealth comes with a mix of risky and less risky investment portfolios, given an instance such as a portfolio that can include high-risk assets such as equities and other options, along with fixed-income investments. However, associated risks must be accurately judged when dealing with corporate fixed deposits for fixed returns. 
• Senior citizens can earn an extra 0.25%: Plus senior citizens get the additional benefit of 0.25% in corporate FDs This is keeping senior citizens in mind for them to make extra returns on the investments for the contribution they have made to the economy. This is the other alternative to Bank FDs to earn higher returns than what it offers with fixed and stable income. It is the commitment of a financial institution that wants to support retirees with tier financial goals.
• Tax on Corporate Fixed Deposits: The tax in corporate FDs is taxable just like the Bank FDs where the interest income is considered as the income from other sources as per the income tax law of India and is taxed as per the individual tax slab rate. That means if you fall under the 30% slab rate then you pay 30% of the tax on the interest income earned.The TDS is deducted at 10% if the interest income for the fiscal year exceeds more than RS 5,000 but it can be exempted by showing form 15G/H for both general and senior citizen Like in Bank FDs, there is no insurance up to Rs 5,00,000 therefore you can invest in those corporates who have credit ratings between BBB and AAA.

Who Should Invest in Corporate FDs?

It is ideal for those mentioned below:

1. You are looking for a short-term but less risky investment.
2. Need FDs that give higher returns than normal FDs but are suitable for those who have lower tax brackets or don’t fall under any tax slab.
3. You know the investment risk and are comfortable with it. Always pick better credit-rated corporates who avoid any delay in meeting obligations.

How much Return can you Gain from Corporate FD

Let’s see in action the returns you’d receive on Bank FD vs Corporate FD 

In this example the the investment capital of Rs 1,00,000 and the respective interest rates of a bank and a corporate are considered for 5 years along with the calculation for Senior Citizens.

Important Considerations Before Investing in Corporate FD

Let us discuss the important considerations that you must review before investing in corporate fixed deposits.

• Risk Analysis: The lack of security is a concerning factor and can not be overlooked, regardless of high interests. A deep analysis concerning the safety of investments through their credit ratings and thorough research should be the first step for investors in selecting the NBFC or corporate entity of their choice. However, the fixed returns provided at maturity make corporate FDs well-suited for risk-averse investors as well.
• Premature Withdrawal: The premature withdrawal sometimes draws a penalty from the investor. An advance inquiry about this feature and an associated penalty helps in avoiding regrets later.
• Credit Ratings: It is the only source to identify the best company for investment. The credit ratings from CARE (Credit Analysis and Research Limited), ICRA (Investment Information and Credit Rating Agency of India Limited), and CRISIL (Credit Rating Information Services of India Limited) are the trusted ones to be considered. The ratings from these institutes are based on repayments by the company,  its records, and. Ratings range from AAA, AA, BBB, BB, and so on. AAA is the best possible rating, while D is the lowest, indicating a default or little recovery expectation.

Bottom Line

Investors who are concerned about creating the best investment portfolio require a balance of debt and equity. Fixed deposits are the components of debt that award fixed returns. These are of two types: regular fixed deposits and company or corporate fixed deposits. The latter option offers higher and fixed returns, lower premature withdrawal fines, and flexibility in terms of the period. Most importantly, the corporate deposit interest rates are pre-fixed and locked; therefore, market volatility does not impact them.

The capacity to leverage it for optimal investor benefit while mitigating potential drawbacks such as security concerns signifies the skill to enhance and diversify one’s portfolio effectively, ensuring a stable and reliable income stream. GoldenPi is a one-stop, trusted, SEBI-registered debt broker offering online solutions to be explored for an interesting portfolio. Having served more than 600k users, we present you with top-rated corporate FDs. Review the necessary details like tenures, ratings, interest rates, and more to make an informed financial decision!

FAQs about Corporate Fixed Deposits

1. How do corporate fixed deposits work for investors? 

Corporate fixed deposits allow you to invest with a minimum investment of INR 5,000, which offers a fixed interest rate for a selected tenure ranging from 12 months up to 5 years. The returns are higher than traditional investments like fixed deposits, which gives you flexibility in picking the frequency of payout anywhere from monthly, quarterly, semi-annually and annually, and on the tenure. To decide on the range of CFDs available, consider checking the credit rating of the instrument, ideally, anything above an A rating is a good option to stay invested.

2. How do corporate fixed deposits differ from regular fixed deposits?

Corporate fixed deposits offer higher interest rates compared to regular fixed deposits. While banks offer regular fixed deposits, corporate fixed deposits are issued by non-banking financial companies (NBFCs), manufacturing companies, and other corporations. This diversity allows investors to choose from a broader range of issuers based on their risk appetite and assessment of the issuer’s creditworthiness.

3. How to invest in corporate fixed deposits through GoldenPi?

You need to invest by following three simple steps, which are,

1. Complete KYC or Know Your Customer 
2. Choose a Corporate FD of interest
3. Make investment 

4. What are the RBI guidelines for companies to accept capital from the public?

The RBI approves companies if they follow the below-mentioned guidelines: 

1. Provide a minimum of one year and a maximum of five years of tenure on fixed deposits 
2. Must have a determined upper limit to collecting the deposits 
3. The interest rate should not exceed RBI-prescribed rates 
4. Must maintain transparency with RBI
5. Must not offer additional gifts or benefits to depositors

5. What is the minimum rating for a company to collect deposits as Fixed Deposits?

A company must be minimally rated BBB to accept deposits from investors. The highest rating is AAA. 

6. Do corporate FDs require special documents?

No, corporate Fixed deposits need government-validated documents. It includes identity and address proof, along with passport-sized photographs. Acceptable documents include voter ID, ration card, Aadhaar card, PAN card, passport, and other such documents. 

7. What are cumulative and non-cumulative interest-based payouts?

Corporate fixed deposits offer the choice between cumulative and non-cumulative payouts. A cumulative payment is one where interests are cumulatively paid at the time of maturity along with the principal amount. Interest calculation and payment are year-wise cumulative, while monthly, quarterly, half-yearly, or annually are non-cumulative. 

8. What is the minimum investment amount for corporate fixed deposits accepted by GoldenPi?

GoldenPi allows the minimum investment amount for corporate fixed deposits to be as low as INR 5,000.