What is a Corporate FD
Corporate fixed deposit is a popular term fixed deposit where money is put for a fixed tenure at a fixed rate of interest. It provides a higher interest rate as compared to the banks on fixed deposits. Corporate FDs have the same role as bank fixed deposits. It is provided by non-banking financial companies (NBFCs) and other financial institutions.
The main difference between corporate FD and bank FD is corporate fixed deposits issued by companies for both public and private whereas bank fixed deposits are issued by banks. Corporate FDs offer high safety options that provide benefit from returns and protection. It also allows higher interest rates than traditional banks.
Corporate fixed deposits provide many options to raise funds from the general public for many firms/companies. Deposit certificates of different tenures at fixed interest rates issued by investors.
How are Corporate Fixed Deposits Different from Bank Fixed Deposits?
The main important difference between the Corporate FD and Bank FD is that Bank FDs offer low rates of interest to their customers whereas corporate FDs offer high rates of interest whereas.
For early withdrawal, the penalty period is lower as compared to Bank FDs. As per RBI’s guideline, within the three months of tenure if you withdraw money from the Fixed Deposits, the penalty for early withdrawal amount you have to pay. The Penalty charges and tenure amount is dependable on the NBFCs and Companies.
Similarly, Corporate FDs guarantee to give fixed rates of interest at maturity. You will get the benefit assured to you no matter what inflation is or what the situation of the markets and economy is.
The opening of corporate FDs has certain risks and relates to the issuers’ financial capacity to give interest and principal repayment amount of FDs.
Similarities in Corporate Fixed Deposits and Bank Fixed Deposits
- Corporate Fixed Deposits provide a guaranteed return
The primary advantage when it comes to investing in corporate Fixed Deposits is that they also assure a guaranteed return like bank Fixed Deposits. At the end of the year, you will receive your amount as promised. Then, no matter how the interest rates change or how the markets move.
Moreover, you need to know the exact amount at the time of investment that you will receive at maturity. You make your future financial plans more confident.
- Higher rates for senior citizens
Most corporate Fixed Deposits provide a higher interest rate for senior citizens like bank deposits. Senior citizens who depend on Fixed Deposit returns for income or those who are retired, it is a good advantage for them.
- The flexibility of choosing the tenure
The tenure usually ranges between one to five years of a corporate Fixed Deposit. And you have to choose the range of flexibility for any duration. So you can choose your tenure accordingly if your goal is one year away, you can invest for one year. However, the interest rate will change accordingly, i.e. higher the tenure, the interest rate is also higher.
Benefits of Corporate fixed deposits
- Corporate FDs provide higher interest rates and returns than traditional banks at the end of the deposit tenure.
- Offer interest payment options and flexible tenure.
- It provides additional interest rates for senior citizens.
- Avail loans against corporate FDs.
- Provide a variety of tenures such as monthly, quarterly, half-yearly, or yearly as per your preference
- A lower penalty is charged by the NBFCs in case of a premature withdrawal than banks.
- Corporate FDs give guaranteed returns for Investors investing in the company. The company needs to pay the investor’s promised amount no matter how the market is performing.
Tips for choosing Corporate Fixed Deposits:
Mentioned below are the factors to choosing Corporate FD schemes-
- Credit Rating: Corporate FDs are based on choosing higher-rated on its credit rating which shows the higher risk of the company.
- Company Background: Check a company’s business history by tracking its Financial Statements, Management Discussion, and Analysis (MD & A).
- Repayment History: Companies’ repayment history helps to check a company’s credit score, credibility, and stability.
What is the Corporate Fixed Deposit mode of interest payment?
The mode of interest payment of Corporate FDs is Cumulative or non-cumulative.
What are the different options for Corporate FDs interest payment?
Corporate FDs allow both the options of cumulative and non-cumulative interest payout. The cumulative option pays interest at maturity with the principal invested. The non-cumulative option pays interest monthly, quarterly, half-yearly, or annually.
What is the Corporate FD minimum tenure?
The minimum tenure is usually 12 months or one year for a corporate FD.
Are corporate fixed deposits safe?
Yes, corporate fixed deposits are safe, but they have less risk than bank FDs.
Are both corporate FDs and company FDs the same?
Yes, both are the same.