Corporate FD (Fixed Deposit)

Corporate Fixed Deposits are term deposits like bank FDs. They offer a fixed rate of interest and the principal amount on maturity. Instead of banks, corporate FDs are offered by Non-Banking Financial Companies (NBFCs). Corporate FDs are very popular among informed investors since they offer higher returns compared to bank FDs.

Corporate FD Features:

Rate of return:

Interest rates of corporate FDs are usually higher than interest rates of bank FDs. For example, Bajaj Finance is offering a 7% interest rate on a 3-4 year FD. Interest rates vary depending on the credit rating of the company.

Tenure:

The tenure for corporate FDs range from 12 months to a maximum of 4-6 years. For shorter tenures, you may consider corporate FDs.

Lock-in period:

Corporate FDs may have a lock-in period. Usually, the lock-in period is 3 months; you cannot make any withdrawal prior to its completion. However, not all corporate FDs may have lock-in periods.

Premature withdrawals:

Premature withdrawals are allowed in corporate FDs. However, penalties may apply. You should weigh this trade-off against the higher returns offered.

Taxation:

Taxation of corporate FDs is the same as Bank FDs. The interest paid by the FD is added to your income and taxed as per your income tax slab.

Points to Consider for Investing:

Interest rate:

Different NBFCs offer different interest rates. You should compare FDs, but also take credit risk into consideration.

Credit risk:

Credit risk refers to the NBFC's failure of meeting interest and/or principal payment obligations, exposing the investor to potential loss. You should consider the credit rating of the instrument.

Mode of interest pay-out:

Corporate FDs offer both periodic (non-cumulative) (interest paid monthly, quarterly, etc.) and cumulative (interest is re-invested to get compound interest). You should decide based on your investment needs.