What are Corporate Deposits - Safe Bet for Individual Investors?
The corporate FDs are issued without any collateral. It is an unsecured form of investment, that is why the rate of interest is higher in comparison to bank fixed deposits. All those who were investing in the Corporate Fixed Deposits should decide after checking the credit rating and present market position of the company. The credit rating helps in determining how safe a bet it is.
Diligence is required not only at the time of investing but even after that. It is a must to keep track of the financial performance of the company by checking its quarterly results frequently. The moment you realise that the company’s performance is declining, take an exit from the company immediately.
Steps to Follow While Choosing a Right Corporate Fixed Deposit Scheme
● Properly evaluate the credit rating of the company by taking the help of the credit rating agencies such as ICRA, CARE, and CRISIL.
● Compare for the interest rates offered by various corporates as it will help in choosing the best corporate fixed deposit scheme.
● Every company sets a maximum and minimum amount for fixed deposits. In case you are willing to make a Corporate FD of amount 25000, but the corporate you have chosen has a minimum FD amount of 50,000. So better to check it before.
● Invest only in AAA accredited corporates to ensure the safety of the capital.
Who can all apply for Corporate deposits?
● Individuals
● NRIs
● Senior Citizen
Documents required:
● PAN
● Aadhaar
● Passport
Age criteria:
● Above 18 years
● A Guardian can open a minor account under their supervision
Know About the Interest Rates Applied to Corporate Fixed Deposits
The interest rate applied to Corporate Deposits is both on a cumulative & non-cumulative basis. The customer can go with any of the schemes as per its choice. Any individual who is willing to get income on a quarterly, monthly, or yearly basis should always go with non-cumulative schemes. Any individual who is looking for long-term savings should go with cumulative schemes. It is imperative to understand that in both cases, the interest rate is subject to change based on the financial position of the company at present. At present, the interest rate offered on Corporate FDs falls between 6-8 percent based on the investment tenure.
Know About the TDS Deductions Applied to Corporate Deposits
If the interest amount earned in Corporate deposits exceeds 5000 a year, in that case, you are liable for tax deduction at source @10%. In case the depositor falls under the category of nil tax slab, then he or she is required to submit Form 15H in advance during the starting of each financial year.
How Corporate FDs are Different from Bank FDs
Investing in Corporate fixed is not much more different from bank Fixed deposit. When you apply for a Corporate Fixed deposit, you need to visit the website of the company or approach the company by making a personal visit. The risk associated with corporate deposits is much higher. It is known as a default risk that you may not be able to get the invested amount on maturity in case the company is facing a loss or has gone bankrupt.
Here is a table that helps you in understanding well the difference between Corporate deposits and bank deposits.
For Whom Corporate FDs are good?
It is considered a better option for Senior citizens who are looking for a regular source of income post their retirement. The interest rate offered to senior citizens is slightly 0.25 percent more as compared to the standard corporate deposit rates offered.
Who Should Not Invest in Corporate FDs?
● If you are a conservative nature of investor, then it is not a wise decision to invest in Corporate Fixed deposits. The reason is that it bears default risks; the corporate may not return the money invested by you for varied reasons. When you are going for Corporate FDs means you are concentrating funds into a specific corporate, that may prove to be a risky portfolio.
● If you are not much sure about the company prospects, then it is best to invest in short term deposits. The tenure of corporate deposit usually ranges from 1-3 years.
● You should never make Corporate FDs in one company, diversify your funds in multiple companies to reduce the risk to some extent.
Here is the List of the Top Corporate Fixed Deposits of India:
● Ansal housing and construction
● ICICI Home Finance Limited
● HDFC limited
● Surya Roshni Ltd
● Jindal Stainless Ltd
● Shri Ram
Conclusion
If you are willing to achieve a financial goal within a tenure range from 1-5 years, then Corporate Fixed Deposits prove to be the best fixed-income instrument to get a higher return on your investments.
Only a financially savvy person who is ready to take higher risks understands and estimates the corporate FDs well. The risk associated with these investments reflects the issuer’s strength. If you leave aside the insurance amount, which is minimal, you are getting higher returns on Corporate FDs.
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