Corporate or Company Fixed Deposit

Fixed deposits have been the most sought-after saving option for many generations to this day. They are the simplest financial instruments to understand. That makes them a favorite of most Indian households. Almost everyone knows how they work. You deposit some money with a bank and earn interest on it. That's it.

Corporate or company fixed deposits are getting popular. They fetch a better rate than that offered by the banks on fixed deposits.

In this comprehensive article, we answer all your questions regarding corporate fixed deposits including their definition, benefits, who can invest in them, and more.

Corporate deposits or company fixed deposits are term deposits wherein you put your money for a fixed tenure at a fixed rate of interest. They are offered by non-banking financial companies (NBFCs) and other financial institutions. Compared to a regular bank fixed deposit, they fetch a higher rate of interest. The maturities of company FDs range from a few months to a few years.

Let us have a look at the top corporate fixed deposit rates in 2021.

If you have a short-term financial goal such as saving for an international trip or buying a gift for your spouse, corporate fixed deposits can be a good investment option.

However, corporate FDs are not covered by the DICGC (deposit insurance of up to ₹5 lakh which is only available for Bank FDs). To overcome this concern, ensure you check the basic fundamentals of the company are strong and the company enjoys a good credit rating. If the credit rating by credible agencies is below average you must reconsider putting your money in that particular company and look for other reliable companies. It is ideal to invest in a high-rated corporate deposit with AAA or equivalent rating. It signifies the highest safety regarding the payment of interest and the principal. As you go lower in the rating chart, the degree of safety reduces.

Corporate fixed deposits fare better than Bank FDs as they offer a significantly higher interest rate. The interest rate difference between regular Bank FDs and corporate fixed deposits is generally in the range of 1% to 3%. This seemingly small difference can have a sizable impact on your corpus in the long run. Moreover, company fixed deposits mostly have lower lock-ins and are bit more flexible in how the interest gets paid.

Similar to Bank FDs, a corporate fixed deposit can also be used to avail loan facility when you require the funds in case of an emergency. The sanctioned amount can vary from one financial institution to the other. Usually, it can go as high as 75% of the fixed deposit amount.

If you are planning to opt for company fixed deposits, it is easy to choose the one that offers the highest interest rate. However, that approach is not ideal. Here are some key factors that can help you choose the best corporate fixed deposit:

• Company's background:

  It is a smart choice to look into the history of the company you want to start an FD with. A credible company with a good track record of happy customers and a long history of profitability is a safe bet. The internet has made it easier for investors to surf through the financial institutions' websites and compare their options before zeroing in on the final company.

• Repayment history:

  Recently, the FD market has become more competitive than ever before. With the lure of high-interest rates, there have been many cases in the past where companies have defaulted on their payments. Or, the depositors have not received their payments on time. Look for companies with timely repayment of fixed deposits and regular interest payments.

• Credit rating:

  Popular credit rating agencies such as ICRA and CRISIL have a 14-point rating system to determine the assumed risk levels of a company fixed deposit. The higher the rating, the safer is the investment. You can gauge the stability of a corporate fixed deposit with its rating and even compare similar products to finalize your investment option.

Now, let us look at the main advantages of investing in the best corporate FDs:

• Flexibility of tenure:

  Similar to Bank FDs, Corporate FDs also offer the flexibility of tenure ranging from 12 to 60 months for which you can remain invested. So, if you are saving for a short-term goal, you can invest for one year. If you are looking to build a decent corpus, you can invest for five years.

• Assured returns:

  As we learnt earlier, the best company FDs enjoy higher ratings from notable credit rating agencies. Most companies offering corporate deposits are certified with CRISIL's FAAA/Stable rating and ICRA's MAAA/Stable rating. These are considered as some of the highest safety ratings offered in the industry in terms of timely payment of principal and interest. A company with a high credit rating is likely to guarantee assured returns on your investment regardless of the market fluctuations.

• Higher interest rates:

  Compared to Bank FD rates, corporate FD rates are higher. Let's look at the table below to compare the company FD rates offered by Bajaj Finserv with Bank FD rates offered by SBI.

  Tenure	Bajaj Finserv company FD Rates	SBI FD Rates
  1 year to less than 2 years	5.94% - 6.10%	4.90%
  2 years to less than 3 years	6.13% - 6.30%	5.10%
  3 to 5 years	6.41% - 6.60%	5.30%

  Over and above these interest rates, senior citizens can avail of an additional benefit of 0.25%. So, if an individual invests with Bajaj Finserv for less than 2 years, he will earn an interest rate of, say, 6.10%. For a senior citizen, the interest rate would be 6.35%.

  This fixed income can come in handy for senior citizens who rely on fixed deposit returns post-retirement for meeting their living expenses.

Listed below are the individuals and group enterprises who are eligible to apply for a company FD:

• Individuals (Residents and Non-Resident Indians)

• Members of Hindu Undivided Family (HUF)

• Clubs

• Corporates

• Association

• Societies

• Educational Institutions

• Partnership Companies

• Cooperatives

The following documents are required by individuals to open a corporate FD:

• Voter ID Card

• Ration Card

• Passport

• Driver's License

• Aadhaar Card

• PAN Card

• NREGA Job Card

• Valid Employee's ID

• Government-validated address proof

• 2 Colour Passport-sized photographs

Interest earned on corporate deposits is taxable as per the income tax bracket you fall under. This means, if you fall under the 30% tax bracket, you pay 30% tax on interest earned in corporate deposits. According to the Income Tax Act, if the interest earned in a financial year from a corporate FD exceeds Rs.5,000, TDS will be deducted. You can avoid paying TDS by submitting Form 15G (or Form 15H in the case of senior citizens) to the bank or non-banking financial institution.