The Role of Fixed Deposits in Corporate Financial Planning

When it comes to corporate financial planning, one key aspect that businesses and organisations need to consider is how to maximise their returns on surplus funds. While there are various investment options available, fixed deposits (FDs) are often a popular choice due to their guaranteed returns and flexibility. 

In this article, we will delve into the key features of fixed deposits in corporate financial planning and explore how businesses can effectively incorporate fixed deposits into their financial strategies.

Key Features of Corporate Fixed Deposits 

Corporate fixed deposits have several distinct features that set them apart from traditional fixed deposits. Let's take a closer look at these features: 

• Higher Interest Rates: Corporate FDs generally offer higher interest rates compared to traditional fixed deposits. This allows businesses to earn greater returns on their business investment. 
• Flexible Tenures: Unlike traditional fixed deposits, corporate deposits offer flexible tenure options ranging from a few months to several years. Businesses can choose a tenure that aligns with their specific financial goals and investment strategies. 
• Regular Income: Corporate FDs provide periodic payouts of interest, offering businesses a regular income stream. These payouts can be monthly, quarterly, half-yearly, or annually. 
• Capital Safety: Corporate deposits offer guaranteed returns of both principal and interest. This ensures that businesses can protect their capital while earning stable returns. 
• Liquidity: In certain cases, businesses can make premature withdrawals from their corporate FDs, albeit with a penalty. Additionally, these deposits can be used as collateral to obtain loans. 

Incorporating Fixed Deposits into Corporate Financial Planning 

Let’s explore how businesses can effectively incorporate fixed deposits into their financial planning strategies and develop a robust corporate FD strategy.

• Assessing Financial Goals: Before investing in fixed deposits, businesses should assess their financial goals and determine the amount of surplus funds available for investment. This evaluation will help them determine the appropriate investment amount and tenure for their FDs. 
• Diversification: While fixed deposits offer stability and guaranteed returns, businesses should also consider diversifying their investment portfolio to mitigate risk. By allocating funds to different asset classes such as equities, bonds, and mutual funds, businesses can achieve a balanced approach to financial planning. 
• Tax Considerations: Businesses should also consider the tax implications of investing in fixed deposits. The interest earned on corporate FDs is fully taxable as per the investor's tax slab. It is crucial to account for these taxes while calculating the overall returns. 
• Reviewing and Renewing: As with any investment, it is essential for businesses to review their fixed deposits periodically and renew them if required. This allows them to take advantage of better interest rates or explore other investment options that may align with their changing financial goals. 

Example Scenarios 

To illustrate the role of fixed deposits in corporate financial planning, let's consider a few hypothetical scenarios: 

Scenario 1: Cash Flow Management 

A manufacturing company receives a large order and needs to purchase raw materials to fulfil it. However, the payment from the client will be received only after three months. To bridge this cash flow gap, the company can invest its surplus funds in a corporate fixed deposit for three months. The interest earned during this period can help cover the expenses related to raw material procurement. 

Scenario 2: Capital Preservation 

A startup has recently secured funding and wants to preserve its capital while earning stable returns. The business decides to invest a portion of its surplus funds in corporate fixed deposits with a higher interest rate compared to regular savings accounts. This ensures that the startup can generate additional income without taking on unnecessary risks.