Fixed Deposit & MIS

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Are you looking forward to building a quality investment portfolio? Make sure that there are both equity components and debt instruments for maintaining a risk-returns balance. Corporate Fixed Deposits are term deposits that need to be held for a specific tenure and offer an interest rate that’s fixed. The regulators have placed a framework for issuing Fixed/Public Deposit instruments. For the issuing company, fundraising through the FD route is an easier option. The NCLT law has changed the fixed-income market landscape in India as the investor can close down the borrowing company in case of default.

Understanding a Corporate Fixed Deposit:

In simple terms, corporate fixed deposits are much like bank fixed deposits; however, the two do have differences. More than savings or investments, corporate fixed deposits are money-raising tools for companies. Here, it is the company that offers the investors with the maturity amount at the completion of the tenure. Investing in a corporate fixed deposit does provide higher interest rates – one of the prime reasons these are attractive investment options for the public. Corporate Fixed Deposits have also some amount of risk, however, they are governed by RBI.

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Benefits of Investments into Corporate Deposits:

Here are some reasons why most investors have been leaning towards investing in corporate FDs. Let’s take a look.

1. Higher Returns and Stability compared with banks and other asset-class

The interest rate of Corporate FD is higher when we compare it with bank FD and other similar instruments. The spread between Bank FDs and Corporate deposits is around 3 % per annum. Similar to bank FDs, the interest rates also are higher for senior citizens. This makes it an attractive scheme for a combined periodic and sustainable payout with accurate predictability.

2. Nominee Facility

The interest rate of Corporate FD is higher when we compare it with bank FD and other similar instruments. The spread between Bank FDs and Corporate deposits is around 3 % per annum. Similar to bank FDs, the interest rates also are higher for senior citizens. This makes it an attractive scheme for a combined periodic and sustainable payout with accurate predictability.

3. Perfect For Short Term

The bank FDs provide tenure ranging from just a few days to over a few years. However, a Corporate FD mainly works as a short to medium-term investment and has shorter tenure not usually higher than five years. Like Bank FDs – there are short-term papers issued by banks ranging from a few days to a few years.

4. Bond Ratings – By Credit Rating Agencies.

Corporate FDs are rated by reputable agencies such as ICRA, CRISIL, or CARE that will track a company’s financial health and ability to repay the interest and principal on maturity.The rating performs through due diligence on not only the financial health of the company but also on other activities and off-balance sheet operations. This helps the investor to understand the risk of investing in the underlying companies.

5. Taxation

There are a variety of Corporate FDs that bring tax efficiency for investors by paying higher or lower maturity value.

Pointers to Keep In Mind Before Investing in Corporate FDs

  • Risk Factor: There are fundamentally two types of risk. Default risk on interest and maturity payment and secondly the interest rate risk.

  • Eligibility of Investors: All individuals over 18 years of age, HUF, Companies, partnership firms, and NRI are eligible to invest in corporate FDs.

  • Pre-Closure: The process of pre-closure in Corporate FDs is in line with the Bank FDs.

Conclusion:

Corporate FDs or fixed-income securities offer predictable cash flow and security of the investments. In case of company liquidation – the bondholder gets priority in terms of repayment over equity investment holders. Corporate FDs offer a higher rate of return than Bank FDs. For example – HDFC Bank offers about a 5.5% rate of interest on Bank FDs, HDFC Ltd offers. 6.95 rate of interest on corporate FD. Corporate FDs also offer diversification in terms of investment diversification for investors. The recent development in NCLT law offers higher protection to bondholders. Equity Investment offers growth with uncertainty over cash flow.

Thankfully, these are short-term investment options – a corporate fixed deposit usually offers a tenure that ranges between one to five years. 

Corporate deposit offers