A Corporate Fixed Deposit (Corporate FD) is a term deposit offered by Non-Banking Financial Companies (NBFCs) and other financial institutions. These deposits function similarly to bank FDs, but typically offer higher interest rates to compensate for the relatively higher credit risk.
Types of Corporate FDs
Cumulative FD:
Interest is compounded and paid at the time of maturity along with the principal amount. This option is suitable for investors looking to build wealth over time without requiring regular payouts.
Non-Cumulative FD:
Interest is paid at regular intervals (monthly, quarterly, half-yearly, or yearly), making it ideal for those seeking a steady income stream.
Short-Term Corporate FDs:
These are offered for tenures ranging from 6 months to 2 years. They offer flexibility and quick liquidity, ideal for short-term investment goals.
Long-Term Corporate FDs:
Typically have tenures from 3 to 5 years or more and often provide higher interest rates as an incentive for locking funds longer.
Senior Citizen FDs:
Many companies offer an additional interest rate (typically 0.25% to 0.50%) for senior citizens investing in their corporate FDs.
Benefits of Investing in Corporate FDs
Higher Interest Rates:
Corporate FDs generally offer better interest rates than traditional bank FDs, especially for longer durations and high-rated companies.
Flexible Tenure Options:
Investors can choose tenures as short as 6 months or as long as 10 years, depending on their goals and liquidity needs.
Periodic Income:
Non-cumulative FDs allow investors to receive regular interest income, which can be useful for retirees or those needing supplemental cash flow.
Credit Ratings Help Assess Risk:
Corporate FDs are rated by agencies like CRISIL, ICRA, and CARE, helping investors choose deposits based on the company’s creditworthiness.
Diversification from Market Risk:
Since FDs are fixed-income instruments, they are not affected by stock market volatility, making them a safer diversification option.
Premature Withdrawal Facility:
Many corporate FDs allow premature withdrawals after a lock-in period (with possible penalty), offering some level of liquidity.
Easy Online Investing:
Most companies and platforms allow digital KYC and seamless online FD investments, making the process hassle-free and convenient.
