CORPORATE FIXED DEPOSITS

 CORPORATE FDs Vs. BANK FDs


As is public knowledge, when discussing savings and investing, it is crucial to understand the motivations and feelings of investors. It is challenging for anyone to successfully save money continuously, despite the fact that it is one of the most crucial parts of wealth creation. You may build money and live a quality life while achieving your hopes and goals by setting aside a little portion of your income.

A well-planned investment and saving routine can help someone exponentially increase their wealth in a number of different ways. One of them is also referred to as a fixed deposit, the most popular financial instruments in India. As an all-purpose answer for everyone, from saving for a trip to saving for retirement, FDs have long been one of India's most popular investment products.

Fixed deposits are currently not the ideal option for long-term goals, despite all the aforementioned investment feelings. However, if the objective is urgent or short-term in nature, FDs may be a helpful. The inclusion of a guaranteed return is the only explanation for that.

But what should we do when bank fixed deposit interest rates are falling?  You need not worry about the falling interest rates of bank FDs because you have an alternate investment option in Corporate Fixed Deposits.

What is a corporate Fixed deposit?

In India, the most common kind of investing is the fixed deposit. Similar to banks, the RBI allows specific corporations and NBFCs to receive deposits with a set interest rate and term. These types of deposits are known as Company or Corporate Fixed Deposits. 

At these times of high market volatility and unexpected returns, corporate FDs provide the assurance of guaranteed returns and the opportunity to choose the tenure, much like banks. Also, corporate FDs have a greater interest rate than bank FDs. Investors who choose the pay-out option can decide whether they wish to accumulate wealth or receive a regular income.

Corporate FDs are different from Bank FDs in certain ways however their features are similar to each other in a number of ways such as:

  • Both Corporate FDs and Bank FDs provide guaranteed returns. Hence, they allow you to calculate the exact amount that you will receive after maturity on the basis of a pre-determined fixed rate of interest per annum.
  • Corporate FDs typically offer a somewhat greater interest rate than regular bank FDs.
  • Corporate FD generally range from one to five years term. It provides freedom to select any duration within that range. Hence, one can choose the tenure with respect to the particular financial goal. For e.g., if your goal is one year away, you should invest for one year; if it is 2.5 years away, you should set your tenure in that manner. The interest rate will vary and the longer the term, the greater the interest rate.

As we have already understood the similarities between corporate FDs and bank FDs and how both have added advantage which help investors in future financial planning in an efficient way.

Let’s have look at the similarities between corporate FDs and bank FDs now:

  • Corporate FD interest rates are greater than bank FD interest rates. Compared to most banks' FDs, corporate FDs have greater interest rates.
  • Corporate FDs have shorter early withdrawal penalty term. According to RBI regulations, all fixed deposits must have a minimum three-month penalty term i.e., an early withdrawal fee is incurred if money is withdrawn within the first three months of the tenure.

Conclusion

The Ministry of Corporate Affairs (MCA) and the RBI have established strict rules and regulations that all NBFCs and corporations must follow in order to receive deposits. So, even though there are over 10,000 NBFC in India, only a select few of them are able to receive deposits from the general public. By taking such steps, investors can invest in corporate Fixed Deposits with the least amount of risk possible.

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