Should You Invest in Company FD : When it comes to FD, people turn to banks. But like banks, there are also corporate FDs. Corporate FD or Company FD, also known as Company Term Deposit, is a fixed deposit scheme which offers slightly higher interest rates than bank FDs. Generally non-banking finance companies offer corporate FDs. However, it also involves risk compared to banks, as it is a scheme offered by private companies.
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Why do companies give FD offers?
These companies need funds to expand their business, due to which they launch corporate FDs so that funds can be raised from the public. At the same time, to attract investors, they offer higher interest. The interest rates on these can be 1 to 1.50 percent higher than bank FDs. Many rating agencies including ICRA, CARE and CRISIL evaluate their fixed deposit schemes and give ratings on that basis. In these also there is investment option for different tenures. So if you want to do FD then you can blindly invest money in company FD. Or keep some things in mind.
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Risk compared to bank FD
It is worth noting that there is some risk in corporate FD as compared to bank FD. One reason for this is that companies raise funds through FD to expand their business. Which means that corporate FD and the interest received on it is directly linked to the business of that company. There is a risk of default in business, due to which corporate FD is also considered riskier than bank FD. Although its chances are very less. Anyway, if the rating agencies have given a high rating then it means that the risk is negligible.
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Interest and Rating on Corporate FD
Shriram Finance
ICRA: AA+/Stable
India Ratings: AA+/Stable
Tenure: 1 year to 5 years
Maximum interest: 8.47% per annum
Interest to senior citizens: 8.80% per annum
Bajaj Finance
CRISIL: AAA/Stable
ICRA: AAA/Stable
Tenure: 1 year to 5 years
Maximum interest: 8.40% per annum
Interest to senior citizens: 8.65% per annum
Muthoot Capital Services
CRISIL – A+/Stable
Tenure: 1 year to 5 years
Maximum interest: 8.38% per annum
Interest to senior citizens: 8.88% per annum
LIC Housing Finance
CRISIL: AAA/Stable
Tenure: 1 year to 5 years
Maximum interest: 7.75%
Interest for senior citizens: 8.00% per annum
Mahindra Finance
CRISIL: AAA/Stable
India Ratings: AAA/Stable
Tenure: 1 year to 5 years
Maximum interest: 8.10% per annum
Interest to senior citizens: 8.35% per annum
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PNB Housing Finance
CRISIL: AA/Positive
CARE: AA/Positive
Tenure: 1 year to 5 years
Maximum interest: 7.60% per annum
Interest to senior citizens: 7.90% per annum
Sundaram Home Finance
CRISIL: AAA/Stable
ICRA: AAA/Stable
Tenure: 1 year to 5 years
Maximum interest: 7.90% per annum
Interest to senior citizens: 8.40% per annum
ICICI Home Finance
CRISIL – AAA/Stable
ICRA – AAA/Stable
CARE –AAA/Stable
Tenure: 1 year to 5 years
Maximum interest: 7.65% per annum
Interest to senior citizens: 7.90% per annum
(Source: Paisa Bazaar.com, Clear Tax)
How to choose a corporate FD
Rating: Rating agencies ICRA, CARE and CRISIL evaluate corporate FDs and give them ratings. They are rated on the basis of whether the scheme is safe or less safe. Their credit ratings are AA and AAA. Lower rated corporate FDs may offer higher interest but carry more risk.
Corporate Governance: While investing in corporate FD, attention should also be paid to the credibility of the group. It should be seen how long the company’s corporate FD has been in existence. The standard of corporate governance also matters a lot. FD of a company with good corporate governance and record can prove to be good in terms of returns and low risk.
Short Term FD: In case of corporate FD, choose a short term scheme rather than a long term one. The risk is reduced on short term FD.
Don’t just look at the interest: Many times companies with lower ratings give more interest, but security is there in companies with higher ratings. Therefore, investors should invest not just by looking at the interest but also by looking at the rating.
Track record of the company: Before investing, check whether the business of the company is strong or not. Is the management trustworthy or not? What is the track record of the company? Invest in deposits of only those companies which are earning profits and are on the right track of growth.
