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Investing for Business Growth: Exploring Corporate Fixed Deposit Interest Rates

October 16, 2024

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When it comes to investments, fixed deposits (FDs) are a popular choice among risk-averse investors. FDs offer guaranteed interest rates, making them a secure investment option.

However, to truly maximise your FD returns, it's necessary to understand the various factors that can influence your earnings. In this blog post, we have explored some smart tips and strategies that can help you get best FD returns. Let's dive in!

Corporate Fixed Deposits (FDs) or Company FDs are term deposits designed for businesses to park their money for a specific period and earn interest on it. However, they are different from Regular FDs in terms of purpose and features.

In this blog, we have explored a few options that businesses can consider to achieve best Corporate FD interest rates. However, let's first understand Corporate FDs and how they are different from Bank FDs.

Understanding Corporate FDs

Corporate FDs are Fixed Deposits designed specifically for businesses. Mostly NBFCs or Non-Banking Financial Institutions offer Corporate FDs. Similar to FDs, Corporate FDs allow businesses deposit amount for a set period of time at a fixed interest rate. So, how are they different from Bank FDs?

Corporate FDs usually come with a higher interest rate compared to Bank FDs. The interest rate depends on the credit rating of the issuer, prevailing market conditions, the tenure of the deposit and the amount. Another major difference is that Bank deposits up to ₹5 lakh is insured by Deposit Insurance and Credit Guarantee Corporation (DICGC). However, Corporate Deposits are not insured by any agency and hence carry a higher default risk.

As far as taxation is concerned, Bank FDs allows you submit Form 15G or 15H to avoid TDS (Tax Deducted at Source) if your total income is below the taxable limit. Corporate FDs do not have this option.

Key Features of Corporate FDs

Credit Rating

Corporate FDs come with a credit rating accredited by recognised agencies such as CRISIL, ICRA, and CARE. These ratings indicate the credibility of the financial institution and help depositors assess the risk associated with their investments.

Interest Payment Options

NBFCs and HFCs provide various interest payout options, including monthly, quarterly, half-yearly, and annual payouts. Alternatively, depositors can choose the cumulative FD option, where the interest is reinvested to harness the power of compounding.

Premature Withdrawal

Most financial institutions offer premature withdrawal facilities with certain terms and conditions. However, it is important to note that penalties may apply for early withdrawals.

Benefits of Investing in Corporate FDs

A Viable Investment Vehicle for Businesses

Corporate Fixed Deposits, though not insured by any agency, offers a reliable channel of investment for businesses to grow their deposits. The interest rate offered remains fixed during throughout tenure and is unaffected by market changes.

Higher Returns

Typically, Corporate FD interest rates are higher than Bank FDs, thus making them a viable option for businesses. However, for individuals, Digital Fixed Deposits continue to be the go-to Fixed Deposit product.

Flexible Amount and Tenure

Another benefit would be the flexibility offered in terms of amount and tenure. You can select any tenure ranging from 3 months to 10 years based on your business goals and liquidity needs. The deposit amount for Corporate Fixed Deposits usually ranges from ₹5,000 to more than ₹1 Crore.

Multiple Interest Payout Options

You have the option to choose cumulative FDs or non-cumulative FDs. For non-cumulative Corporate FDs, the interest is paid out monthly, quarterly, half-yearly or annually as per your preference.

How to Choose the Best Corporate FD?

1. Credit Rating

Before investing, check the credit rating assigned by rating agencies like CRISIL, CARE, or ICRA. The higher the rating, the lower the chances of default in interest and principal repayments. Doing this activity is all the more important since Corporate Fixed Deposits are not insured by DICGC. Click here

2. Interest Rates

Compare Corporate FD interest rates offered by different issuers before making a decision. Some NBFCs provide higher interest rates for the same tenure as others. Research thoroughly to maximise your returns.

3. Lock-in Period and Withdrawal Charges

Understand if there is a lock-in period during which premature withdrawals are not allowed or if there are any charges associated with early withdrawal.

4. Reputation and Track Record

It is always recommended to invest in Corporate FDs offered by well-established institutions with a proven track record of timely interest payments and principal repayments.

Corporate FD: Eligibility Criteria and Documents Required

This is a generic illustration and may vary across Corporate FD issuers:

Must be a resident Indian.
Age 18 or above, with legal capacity to enter into a contract.
Companies, partnership firms, and charitable institutions are also eligible.

Documents Required for Companies and Other Entities:

Corporate Documents: Certification of incorporation.
Board Resolutions: Authorising the investment.

Final Thoughts

Investing for business growth requires careful consideration. Corporate FDs can be a viable option for businesses seeking stable returns for a specific tenure. However, consider credit ratings, service charges, flexibility in terms of interest payouts, etc., before booking a Corporate Fixed Deposit.

Looking to grow your savings? Ujjivan SFB offers a wide range of fixed deposit products. Select the FD of your choice and take a step forward to your financial goals. Alternatively, you can browse through Ujjivan SFB product suite - our wide range of financial products are designed to make your financial life better.

FAQs

1. How can I find the best corporate fixed deposit rates?

Research institutions with strong credit ratings and compare their corporate fixed deposit rates to make informed investment decisions.

2. Are Corporate FD returns taxable?

Yes, Corporate FD returns are taxable as per the Income Tax laws.

3. What is the difference between Regular FD and Corporate FD?

Corporate FDs, issued by NBFCs, often offer higher returns but are not insured by DICGC. Regular FDs, provided by banks, are insured by DICGC up to a limit, making them more secure.

4. Are corporate fixed deposits safe?

Corporate Fixed Deposits carry a certain level of risk as they are not covered under the deposit insurance program provided by DICGC. However, investing in FDs issued by companies with high credit ratings can reduce the risk of default.

5. How are corporate fixed deposit interest rates determined?

Corporate FD interest rates are determined by the issuing company based on various factors such as market conditions, credit ratings, and competition.

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