Corporate Fixed Deposits - Meaning, Benefits And How To Invest

Fixed deposits (FDs) are a well-known choice for investors looking for profitable returns in India. Like other central banks, the Reserve Bank of India (RBI) allows selective companies and non-banking finance companies (NBFCs) to accept amounts deposited by investors for a fixed interest rate and a specific period.

In uncertain times where the share market is almost always inconsistent with variable returns, these fixed deposits provide financial security with fixed and predictable dividends. Investors can even choose to earn timely income by using the pay-out option or collect capital with the cumulative option.

What is a Corporate Fixed Deposit?

A corporate or company fixed deposit is an amount of money deposited by investors for a specified period at a predetermined interest rate. Financial institutions and NBFCs also accept these FDs. The maturity periods of different companies can vary anywhere from a couple of months to a specific number of years.

FDs are a secure way to generate funds for many companies/organisations by the general public. The deposits are usually judged and rated for credibility by a few rating agencies such as Investment Information and Credit Rating Agency of India Limited (ICRA Ltd), Credit Analysis & Research Limited (CARE Ltd) or Credit Rating Information Services of India Limited (CRISIL Ltd).

These deposits are legislated under the Companies Act of section 58A. However, these deposits are not secured; if the company fails, the investor will not be able to sell the agreements to recover their capital. A reason why it is also considered a risky option by some.

Benefits of a Corporate Fixed Deposit

  • Comparatively high returns: The interest rates are one of the most compelling reasons to invest in them. In corporate fixed deposits, the interest rate is higher than an average fixed deposit offered by any bank.
  • Special consideration for senior citizens: Even though the interest rate for corporate FD is higher than regular fixed deposits, senior citizens get an extra 0.25% hike when investing.
  • Flexibility: Corporate fixed deposits can be chosen per an investor’s preference depending on different term durations such as monthly or yearly.
  • Liquidity: Corporate fixed deposits provide higher liquidity and lower lock-in durations than regular fixed deposits.
  • Comparatively lesser risk: These are an excellent option for investors with a low appetite for risk. Respected agencies, like triple-A-rated (AAA) companies, often assure corporate fixed deposits.
  • Predictable and fixed dividends: Since these deposits generate capital for companies, they assure predictable and improved returns—a reason why this is a suitable option for investors desiring timely dividends or even for creating wealth.
  • Higher post-tax dividends: Compared to regular FDs, corporate fixed deposits have a better potential for higher post-tax returns.
  • Free from market volatility: As unpredictable as the stock market is in today’s world, corporate FDs are a safe option for predictable and fixed returns as they are free from the ever-changing world of market volatility.
  • Making the process of loans easier: Most corporate fixed deposits readily grant loans up to 75% of the matured amount. Moreover, the fine for premature withdrawal is minimal, which only enhances the liquidity of these deposits.

Eligibility Criteria for Corporate Fixed Deposits                                  

The following can apply for a Corporate fixed deposit:

  •   Residential individuals.
  •   Nonresidential Indians (NRIs).
  •   Senior citizens.

The following can invest in a Corporate fixed deposit:

  • Hindu undivided families (HUFs).
  • Residential individuals.
  • Partnership firm.
  • Nonresidential Indians (NRIs).
  • Trusts.
  • Cooperative societies.
  • Minors (accompanied by guardians).
  • Corporates.

Following are the documents required for Corporate fixed deposits:

  • PAN card.
  • Aadhaar card.
  • Passport.

Conclusion

Corporate fixed deposits can be a beneficial option for investors looking for fixed and predictable returns with a high-interest rate on their investments. However, one must keep certain things in mind before choosing to invest in a corporate fixed deposit, such as the credit rating of a company along with its financial background and repayment history.

These factors determine a company’s economic viability, credit and security. Opting for high rated corporate FDs (rated by independent rating agencies such as CARE, CRISIL or ICRA) is a sure way to guarantee the safety of your investment and hence regular returns. As shown on Kuvera, Bajaj Finserv fixed deposit is a great option to invest in with one of the lowest risks of all deposits.

Read More: On the Move? How to Get Your Full Security Deposit Back

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