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What are AAA Rated FDs

Looking at Credit Ratings for Fixed Deposits

Usually, the fixed deposit interest rates of banks are falling in the last few quarters. This means that investors who are looking for a fixed income option are looking for various avenues at the same time, including the bank’s fixed deposits.

Fixed deposits in banks are considered to be relatively safe. However, what most people don’t know is that corporate fixed deposits actually come with high risks. This is why if you are planning to get a corporate fixed deposit, then you should start by checking the credit rating of the fixed deposits that have been issued by the company.

There are many different kinds of ratings, including CRISIL, ICRA, CARE, and AAA rated FD. Out of all these types of ratings, AAA rated FD is the most important one to understand. And we will help you with that today in this article.

A Closer Look at Credit Ratings for Fixed Deposits

Before we jump into talking about AAA rated FD, it is important to set the stage. This means that you need to understand the concept of credit ratings in a little more detail. We’ll do exactly that in this section.

Every household follows a different pattern for saving. And to understand this, SEBI conducted an in-depth survey in 2015. And according to the results of this survey, 95% of the savings in Indian households are put into fixed deposits. And even though it has been six years since then, the fact remains that many investors choose fixed deposits to get a regular income or to grow their income steadily.

Another reason why people opt for AAA rated FD for securing their future is because these FDs are safe and secured. Corporate FDs with AAA rating comes with higher returns and the lowest possible risks.

The main goal of providing these credit ratings to banks and FDs is to give assurance and encourage depositors to opt for corporate FDs. The highest credit quality is assigned to ratings like FAAA rated FD and MAAA. The lowest rating is FD or MD. The ratings serve their purpose by giving an indication to the investor in terms of which FDs are high risk and which are not.

Factors Affecting Credit Rating in Fixed Deposits

You now know that the AAA rated FD is considered to be the one with the lowest risk and highest credit quality. However, do you know what factors affect the credit ratings of fixed deposits?

If you don’t know the answer to this question, then you don’t need to worry as we have got you covered. Go through the list of factors mentioned below.

  • The liquidity status of the FD issuer
  • The repayment profile of the issuer
  • FD issuer’s track record and quality of customer service
  • Market and competition for FD
  • Management team and risk management structure of the issuer
  • Issuer’s scope of expanding the business
  • FD’s maturity profile, renewal rates, and granularity

 

If an FD and issuer are rated satisfactory and highly in all of these departments, then a higher or good quality credit rating is given. The different ratings that are given to FDs are:

  • AAA, AA, and A = Good credit quality
  • BBB and BB = Average credit quality
  • B, C, and D = Low credit quality

 

Understanding Different Credit Quality Ratings

Till now we have covered the basic credit quality ratings. However, you should also know that there are many other types of ratings given by different organizations. We will help you become familiar with that now. Let’s first look at the ratings given by CRISIL.

  • FAAA – Highest safety
  • FAA – High safety
  • FA – Adequate safety
  • FB – Inadequate safety
  • FC – High risk
  • FD – Default
  • NM – Not meaningful

 

The ratings given by ICRA for FDs are:

  • MAAA – Highest credit quality
  • MAA – High credit quality
  • MA – Adequate credit quality
  • MB – Inadequate credit quality
  • MC – Risk-prone credit quality
  • MD – Lowest credit quality

 

Apart from all this, organizations also attach a + (positive sign) or – (negative sign) to credit ratings. This indicates higher or lower credit quality. Further, if this is becoming too complicated for you, then you simply need to remember that AAA rates FD is a good quality FD.

Picking the Top Rated FD Schemes

Based on everything that we have discussed till now, you have the tools that you need to make a sound investment decision. Ideally, individuals should be investing in AAA rated FD. This is because these FDs have a high credit quality or a high credit rating.

This further points to the fact that these credit ratings show the consistent, stable, and credible status of the organization. Further, apart from checking the credit rating of an investor, there is not much else that one can do to be assured of quality. But if you want to be extra sure, then it is a good idea to diversify your savings. Spread your FDs in 2-3 companies to minimize the risk.

 

FAQs:

What is a company fixed deposit scheme?

Organizations often mobilize funds through fixed deposit schemes for the public. These funds are used by the company for working capital requirements or for generating corporate purposes. This approach is often preferred as it is cheaper than getting loans from banks and other financial institutions.

Can I invest in an AAA rated fixed deposit?

Yes, almost everyone can invest in an AAA rated fixed deposit. However, before investing in a fixed deposit, one should go over the specific eligibility criteria and the credit rating of the FD.

Are the AAA rated private company FD schemes approved or registered by the RBI? Also, if any of these companies are in NP, does that mean that one can get the DIGG insurance of INR 5 lakh which is applicable in the scheme?

Yes, the AAA rated private company FD schemes are registered and approved by the RBI. Further, any RBI registered NBFC would go for credit rating to accelerate the scope of the FDs.

Should I invest in a PPF account or AAA rated FDs?

The answer to this question depends on the requirements of the investor. If you want higher returns and you don’t mind the chance of risk, then AAA rated FDs are a good option.
However, if you want a lower-risk investment option that also saves tax, then you can invest in PPF. You should also remember that PPF accounts come with a fifteen years lock-in period.

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