Corporate FD or Company FD: Features, Benefits, Eligibility & Everything

The widespread acceptance of Fixed Deposits (FDs) and gold in India is a testament to the country’s propensity for safe and conservative investment options. For investors who are risk averse, FDs have emerged as a top choice because of their reliability and guaranteed returns.

Banks are still a popular option for FD investments because of people’s faith in them. Still, non-banking financial companies and other organisations also provide an option in corporate fixed deposits (Corporate FDs).

These Corporate FDs could provide better benefits than standard FDs. In this post, we’ll discuss the benefits of investing in corporate fixed deposits, explain the differences between corporate and standard fixed deposits, and advise whether corporate FDs are the best investment for you.

What is a Corporate Fixed Deposit?

As the name suggests, a Corporate Fixed Deposit is an FD scheme offered by corporates. RBI has licensed select Non-Banking Financial Companies (NBFCs) to take deposits from the general public. 

Just like regular FDs, Corporate FDs are also conservative investment options. The company may use your fund for its expansion activities or for lending to its borrowers, but the interest rate is fixed and not dependent on how the company performs in the stock market.

Opting for a corporate FD comes with certain risks as you could lose your money, including the interest earned, in case the company defaults. Hence, the risks associated with Corporate FDs are higher when compared to regular bank FDs. Therefore, it becomes imperative to research well about the company before investing.

Also Read: Experience financial growth with unmatched Bajaj Finance FD Rates

Features of Corporate FD

Fixed Interest Rates

Corporate FDs ensure a fixed income. Corporate FD rates rarely change and do not depend on market conditions. This feature is an important reason why many investors in India prefer Fixed Deposits.

Premature Withdrawal

One of the biggest disadvantages of investing in an FD is the lock-in period. But Corporate FDs could be a solution here. Many Corporate FD providers allow premature withdrawal with fewer conditions.

Higher Liquidity

Because premature withdrawal is easier in corporate FDs, they have comparatively higher liquidity. But their liquidity may still be lower than other options that don’t have a lock-in period.

Rated by Credit Rating Agencies

NBFCs are rated by credit rating agencies, which makes it easier for you to choose according to your investment goals and risk appetite. Usually, Corporate FDs with comparatively lower credit ratings carry higher risk, but they have higher return potential.

Loans on FD

Corporate FDs may give you loans of up to 75% of total FD value.. The FDs can also be used as collateral for loans in some cases.

Benefits of Investing in Corporate FDs

Below are some of the benefits of Corporate FDs that make them an attractive investment option:

Flexibility of Tenure

Corporate FDs are similar to regular FDs, but when it comes to tenure they offer more flexibility. Banks typically have set tenures for fixed deposit schemes, but many corporate FDs allow for customisation. You can choose your tenure based on your financial goals and interest rates. Premature withdrawal terms are also slightly relaxed for corporate FDs.

Assured Returns

One of the most significant advantages of investing in an FD is the assured returns. Your investment is not linked to the market, and the returns are based purely on the interest rate offered. Corporate FDs carry the same benefits as bank FDs. These come under the strict purview of the RBI; hence, the chances of a corporate changing the FD interest rate after signing up are very low. This gives you the benefit of fixed returns that facilitate better investment planning.

Higher Interest Rates

Regular FDs have a lower return compared to market-linked investment options, even though they make it up with fixed interest rates and zero risks. But you may feel dissatisfied occasionally, especially when it fails to beat inflation. Corporate Deposits are good solutions as they offer comparatively higher interest rates. There are two reasons why Corporate Fixed Deposits give you higher returns: to attract more customers from traditional institutions like banks, and because their loans usually have higher interest rates. However, Corporate FDs are not secured under the insurance cover offered by the Deposit Insurance and Credit Guarantee Corporation (DICGC), an RBI subsidiary.

But, as with every other investment option, the higher return potential could mean higher risk. This is because NBFCs and other financial institutions may not have fundamentals as strong as banks. But, even then, the risk associated with investing in corporate FDs still remains low.

How to Invest in Corporate FDs?

Investing in Corporate FDs is a relatively straightforward process, and it involves a few key steps:

Research and Choose a Company: Research various companies offering Corporate FDs. Look for credit ratings by agencies like CRISIL or ICRA; a higher rating indicates lower risk. Choose a company that is reputable and has a solid financial track record.

Review the Terms: Once you’ve selected a company, review the terms of the Corporate FD. Consider the interest rate, tenure, payout frequency, and the minimum investment amount. Ensure that the terms align with your investment goals and risk tolerance.

Fill Out the Application Form: Obtain the application form from the company’s website or office. Fill it out with the necessary details, such as your name, address, PAN, and bank details.

Submit KYC Documents: You must submit KYC (Know Your Customer) documents alongside the application form. This typically includes a copy of your PAN card, address proof, and a photograph.

Make the Investment: Decide the amount you wish to invest and pay via cheque, DD (Demand Draft), or online transfer, depending on available options.

Receive the FD Receipt: Once your application and payment are processed, you will receive an FD receipt or a Fixed Deposit Certificate. This document serves as proof of your investment.

Monitor Your Investment: Keep track of interest payouts and the maturity date. Reinvest the principal amount upon maturity if it aligns with your financial goals.

How to Choose the Best Corporate FDs?

The top 5 crucial criteria for choosing the best Corporate FDs are:

Credit Rating: Ensures the financial stability and reliability of the issuing company, reflecting the risk level of your investment.

Interest Rates: Determines the returns on your investment; a competitive rate, balanced with risk, is essential.

Company Reputation: A company with a strong track record of profitability and reliability is more likely to fulfill its obligations.

Tenure Options: Aligning the tenure with your investment horizon and liquidity needs is crucial for optimizing benefits.

Tax Implications: Understanding the tax implications on the interest earned is vital for accurate return calculations and compliance.

Eligibility Criteria for Corporate FD

Investing in a Corporate FD online or offline is easy. To get started, check out the eligibility criteria. Below is the list of eligible individuals/entities that can apply for a Corporate FD:

1) All individuals with the requisite identity and address proofs.

2) Members of Hindu Undivided Families (HUF).

3) Clubs that have registration and PAN details.

4) Corporates

5) Associations and societies that have proper registration documents.

6) Registered educational institutions

Documents Required for Corporate FDs

Identity Proofs:

Voter ID Card
PAN Card
Aadhaar Card
Passport
Driving Licence

Address Proofs:

Ration Card
Aadhaar Card
Passport
Driving Licence

Additionally:

A couple of passport-sized photos are also required.

Who Should Invest in Corporate FDs?

The mode of interest payment for company FDs is flexible and caters to the diverse needs of investors. Depending on the company’s policy and the investor’s preference, interest can be paid out at varying intervals – monthly, quarterly, half-yearly, or yearly. Some companies also offer the option for the interest to be paid at maturity, allowing the investment to grow and compound until the term ends.

This diversity in payment modes allows investors to plan and manage their cash flows effectively, aligning with their financial goals and requirements. Different companies might have distinct policies and offerings, so it’s advisable for investors to review the terms before investing thoroughly.

RBI Guidelines that NBFCs Must Follow for Fixed Deposits

We trust banks with our money. But when select NBFCs offer investment options such as FDs, there has to be utmost transparency to gain investors’ trust. NBFCs must follow certain guidelines before launching a fixed deposit scheme. This includes:

• Offer a minimum tenure of one year, and a maximum tenure of five years.
• Adhere to the rates of interest for fixed deposits prescribed by the RBI.
• Stick to the permissible limit up to which they can collect FDs. This limit varies for different NBFCs.

Conclusion

If you want to invest your hard-earned money in a low risk fixed-income investment instrument, Corporate FDs might be a great investment choice for you.

FAQs

What are the tax implications on Corporate Fixed Deposits?

The returns from Corporate FDs are added to your income and taxed according to the tax bracket your income falls in. For instance, if your income is Rs. 5 lakh and you get Rs. 1 lakh returns from an FD, your total taxable income becomes Rs. 6 lakh. Senior citizens however do get a tax deduction of up to Rs. 50,000 on the interest earned on the FD.

What are the documents required for Corporate FD?

You need a valid government-approved identity and address proof such as an Aadhaar card, Passport or Voter ID to apply for a Corporate FD.

When can you apply for premature Corporate FD withdrawal?

You can apply for premature Corporate FD withdrawal any time after your investment. But penalty charges may apply if you close too soon to the booking date. However, if the FD is prematurely closed, before completing 7 days from the date of the booking, the bank or the company is not liable to pay any interest.

What are the things to keep in mind when choosing a Company fixed deposit?

It is vital to look at the credit rating of the company offering the FD before choosing one. A better credit rating may indicate lesser risk.

What are the different interest payment options of Company FDs?

There are two interest payment options: cumulative and non-cumulative. If you choose the former option, your returns will be reinvested and paid to you only at the time of maturity. In the case of the non-cumulative option, the interest will be paid to you at regular intervals.

Can you apply for a company FD online?

Yes, you can apply for a company Fixed Deposit online, with many companies offering a simple and convenient online application process.

What is the minimum tenure for a company FD?

The minimum tenure for a company FD typically ranges from 7 days to one year, depending on the company’s policy.

What is the mode of interest payment?

The mode of interest payment for company FDs can be either monthly, quarterly, half-yearly, yearly, or at maturity, varying from company to company.