Fixed deposits are a popular option for investing money. If you are an individual or company who wants to save money securely, investing in fixed deposits is the favourable option. Banks offer different types of fixed deposit plans to investors. However, the Reserve Bank of India (RBI) has allowed different Non-Banking Financial Companies (NBFCs) to offer Corporate FDs for customers ready to get high returns against short-term investments.
Let’s explore corporate FDs, their benefits, investment requirements, tax implications and other crucial aspects.
What is a Corporate FD?
Corporate fixed deposits are offered by different NBFCs or financial institutions that act as a saving technique for investors. You can invest a fixed amount of money for a fixed tenure and at an attractive interest rate. Generally, the interest rates offered on corporate fixed deposits are higher than the normal FD schemes provided by financial institutions. However, the maturity period on such FDs ranges between 1 year to 10 years.
Features of Corporate FD
The key features of investing in a corporate FD scheme are as follows:
- You can liquidate these fixed deposits based on the terms and conditions offered by the NBFC.
- There are no restrictions related to the use of the money after the completion of the maturity period.
- You can check the credit ratings of companies offering corporate FDs with the help of CRISIL and ICRA. It helps depositors to evaluate different risks involved in such investment options.
- As an investor, you get the option to take a loan against company fixed deposit schemes, irrespective of applying for a non-cumulative or cumulative investment option.
- The interest you earn from these deposits is taxed according to the tax bracket the investor falls into.
- DICGC does not insure investment amounts of corporate fixed deposits; hence, these deposits are riskier than normal FD schemes.
- Senior citizens applying for such a scheme get additional benefits in interest rates.
Benefits of Corporate FD
Before investing your money in company fixed deposit schemes, you must review the following benefits to analyse whether this scheme suits your financial goals.
1. Tenure Flexibility
The tenure provided by financial institutions and NBFCs towards corporate FDs is flexible, just like in the case of bank fixed deposits. The range is mostly between 12 months to 60 months. However, some financial institutions offer you the option to deposit money for a tenure of a maximum of 10 years.
2. High Rate of Interest
Corporate fixed deposit rates are higher than that of bank FD interest rates. Senior citizens get an additional rate of 0.25% on the interest. If you want to save money for the short term, high-interest rates can bring you higher returns,
3. Ensures Return on Investment
NBFCs offering company fixed deposits enjoy ratings from different noteworthy credit rating agencies. A higher rating acts as a point of assurance to the investors regarding return on deposits. Some notable credit rating agencies include ICRA’s MAAA / Stable rating and CRISIL’s FAAA / Stable rating. These ratings are considered the highest safety rating NBFC can have in terms of timely interest and principal payment to depositors.
4. Alternative Payment Option for Periodic Interests
There are different options available to fixed depositors in the payment of interest. You can get interest paid out on FDs monthly, half-yearly, quarterly and annually.
5. Low Premature Withdrawal Penalty
After investing your money in a company fixed deposit, you can avail premature withdrawal option seamlessly. However, you will be charged with a certain penalty, but the amount in most cases is low. This makes it possible to invest money in such FD plans.
Best Corporate FD Rates 2024
Here is a list of companies offering this investment plan’s best corporate fixed deposit rates.
| Company Name | CRISIL Credit Rating | Interest Rate (p.a.) | Tenure |
|---|---|---|---|
| Bajaj Finance | AAA | 7.40% – 8.35% | 1 – 5 years |
| ICICI Housing Finance | FAAA | 7.00% – 7.60% | 1 – 10 years |
| Mahindra Finance | FAAA | 7.40% – 8.05% | 1 – 5 years |
| LIC Housing Limited | FAAA | 7.25% – 7.75% | 1 – 5 years |
| Shriram Finance | AA+ | 7.60% – 8.50% | 1 – 5 years |
| Punjab National Bank Housing Finance | FAA | 7.00% – 7.70% | 1 – 10 years |
Who Should Invest in Corporate FD?
Let us check the list below to understand who should invest in company FD.
- If your investment goal is for a short period and you do not want to opt for a risky investment plan, then investing in corporate FD is the best option.
- These FDs have a higher interest rate, providing high returns on the deposit amount. Hence, if you fall under a high tax bracket, it is recommended not to invest in this FD plan. Instead, this can be a beneficial investment option for individuals who do not fall under any tax slab or low bracket due to high returns.
- Corporate FD is a suitable investment option for individuals who are comfortable taking investment risks. However, before applying, you must check whether the NBFC is rated as per ICRA or CRISIL, confirming a stable rating on such FDs.
Why Should You Invest in Company FD?
Corporate fixed deposits outshine traditional Bank FDs by offering significantly higher interest rates, typically ranging from 1% to 3% more. While this may appear as a modest gap, its long-term impact on your savings can be substantial. You can employ an FD return calculator to visualise this discrepancy, adjusting for varying interest rates.
Furthermore, company FDs often feature shorter lock-in periods and greater flexibility in interest disbursement compared to their bank counterparts. This flexibility can be a crucial factor in optimising your financial strategy.
Like Bank FDs, corporate fixed deposits also serve as a valuable resource for securing loans in emergencies. The sanctioned loan amount varies among financial institutions but can potentially reach up to 75% of the deposited sum. This dual benefit of high interest and liquidity makes corporate fixed deposits a compelling choice for prudent investors seeking to maximise returns while retaining access to their funds when needed.
Documents Required for Corporate FDs
You need to produce different documents while applying for a corporate fixed deposit. They are as follows.
1. For individual applicants:
- Aadhar card
- PAN card
- Passport-sized photograph
2. For private or public company applicants:
- Certificate of incorporation
- PAN card
- Memorandum of association
- KYC details of any authorised signatory
- Board resolution that can affect booking fixed deposit account
Eligibility Criteria for Corporate FD
Your assessment of company fixed deposit rates significantly depends on the eligibility criteria you fulfil. Let us check the below section to understand who is eligible to apply for company FDs.
- Individuals – both residents and NRIs (Non-Resident Indians)
- Corporates
- Societies
- Members of HUF (Hindu Undivided Family)
- Association
- Partnership companies
- Cooperatives
- Educational institutes
- Clubs
How to Apply for Company FD?
After analysing all the terms and conditions applicable to corporate FDs, you can follow the step-by-step guide below to apply.
- Step 1: Visit the official website of the NBFC or financial institute you choose to open your corporate FD account with.
- Step 2: Log in to your account using your credentials.
- Step 3: Navigate to the section on fixed deposits or bonds.
- Step 4: Select’ corporate FD’ under the FD or Bonds option.
- Step 5: Select the issuer of your choice and click ‘Go’.
- Step 6: Apply for your accounts in a few clicks as per the instructions given on your screen, and your company fixed deposit account will be booked.
How to Choose the Best Company for Fixed Deposits?
When you plan to choose a corporate fixed deposit option, choosing one with the highest corporate FD rates is always recommended. However, this selection must not remain limited to interest rates. Here are some factors to look at while choosing the best company to apply for a corporate fixed deposit account as per your financial suitability.
1. Background of Company
Bedford applying for a fixed deposit account is always smart to have a background check on the financial institution or NBFC. A well-known organisation with a history of profitability and positive reviews is a safe option to invest your money in.
As an investor, you can check the official website of the organisation or compare its conditions and offers with other financial institutions. This will help you clearly understand what it offers and whether it will be feasible for your financial plans.
2. Credit Rating from Agencies
Different credible credit rating agencies have a 14-point rating system for financial institutions. CRISIL and ICRA follow this credit rating strategy to determine the level of risk an NBFC possesses towards fixed deposit schemes.
Companies with the highest rating ensure their corporate fixed deposits are safe to invest in. Moreover, you can also opt to compare similar services with high ratings to finalise your deposit decision.
3. Repayment History
In recent periods, the competition in the FD market has risen significantly. With attractive interest rates offered by financial institutions, there have been instances of companies failing to pay back their customers the principal as well as the interest amount after the maturity period.
Therefore, it is always advisable to check the repayment record of a company. Choose the ones offering timely repayment of your FD and pay interest at regular intervals.
Tax Implications on Corporate FDs
Look at the list below to understand a few tax implications associated with corporate FDs that you must remember while applying.
- 30% tax shall be imposed on the earned interest from FD if your tax bracket falls under the 30% range.
- As per the Income Tax Act of India, your interest earned from company fixed deposits is taxable as per law.
- You can avoid TDS (Tax Deducted at Source) on your interest income by submitting to your NBFC either Form 15G or Form 15H. Both general and senior citizens can provide this form.
- If your interest income on FD exceeds ₹5,000, TDS will be deducted as per the rules of the Income Tax Act.
Conclusion
Overall, opting for corporate FD is a great option to deposit your money in a low-risk or secure option with NBFCs. You get high FD interest rates compared to normal FDs of a bank, and the application process for the scheme is easy. If you are planning to invest your money for a short period and are ready to take some risk on investment, this can be the best option due to higher returns.
However, make sure to read all terms and conditions and check the credit rating of the financial institution before applying for company FD to avoid discrepancies in your investment.
FAQs
No. There is a big difference between Bank and corporate FD. If you choose to invest in a corporate fixed deposit, you have to apply through NBFCs. Banks do not offer such schemes. Also, returns are higher in corporate FDs than in Bank FDs.
Minimum tenure is 12 months, and maximum tenure varies from 5 to 10 years, per the financial institution’s policy or NBFC regarding corporate FDs.
Yes. Financial institutions offering company fixed deposits offer higher rates of interest on the investment than interest rates provided by banks.
Depending on the financial institution, senior citizens get an additional benefit of 0.25% to 0.50% on interest rates.
Depending on the financial institution, senior citizens get an additional benefit of 0.25% to 0.50% on interest rates.
As per the laws of the Income Tax Act of India, your interest earned on corporate FD is taxable. TDS is also deducted from income if your earned interest is more than ₹5,000.
Disclaimer
This article is solely for educational purposes. Stable Money doesn't take any responsibility for the information or claims made in the blog.
