Company fixed deposits provide an alternate investment alternative to investors who look for fixed returns. In comparison to bank fixed deposits, corporation fixed deposits give greater returns across diverse tenures. “Company fixed deposits are offered by Housing and Non-Banking financial companies (NBFCs) under the Companies Act, 2013 guidelines. They offer higher interest rates in comparison to bank fixed deposits,” says Mohit Mittal, VP & Product Head Investments, Bajaj Capital.
However, the danger compared to bank deposits is greater in them. “Company fixed deposits are unsecured in nature and don’t have any Deposit Insurance in place as of now unlike Bank FDs where up to Rs 5 lakh is secured. While considering the overall health of the NBFC and HFC, one can consider the Risk-Reward and invest in a diversified manner to ensure minimum risk and decent returns,” says Mittal.
Generally, the tenure variety from 6 months to 60 months and there are several interest payment selections to decide on from cumulative deposits (exactly where interest is payable at the time of maturity) or con-cumulative CFDs (exactly where interest could be payable at month-to-month, quarterly, half-yearly or annual basis). It’s superior to steer clear of locking in funds for a longer tenure in them. Remember, the greater the return, the greater is the danger involved.
It is superior to invest in corporation fixed deposits that carry AAA ratings denoting higher security for capital invested and interest earnings. Still, the ratings could adjust more than time and therefore relying completely on them could not be the appropriate strategy. “Since most of the NBFC and HFCs offering Fixed Deposits carry high Rating such as AAA, stable financials over the past few decades and strong Management to look after, hence can be considered it as a safe option,” adds Mittal.
According to Mittal, couple of crucial points to take into account just before investing in corporation FD are:
- Don’t place all the eggs in a single basket: Investor should really diversify the investment in several corporations. Ideally not more than 10-15% of the all round portfolio should really be invested in a single corporation.
- Investors should cautiously study the application type just before investing.
- Check the Rating and Financials of the corporation just before investing.
- Do a background verify of the corporation just before investing dollars into it.
The minimum investment quantity in corporation fixed deposits could differ across tenures and corporations. Some deposits could give a greater price of interest for a particular tenure but the minimum investment quantity could be greater than the frequent deposits.
There are some corporations that give on-line deposits and even give an further price of interest. Some of the deposits could carry further incentives in case of renewal of deposits with them.
It is recommended to stick to only reputed corporations which have sturdy financials. Also, stagger your investment across diverse tenures whilst diversifying across corporations. Instead of investing for a equivalent tenure, spread across 1-2-3 year period as it aids in managing re-investment danger as properly. Finally, do not invest in them solely for greater returns as the corresponding danger will also be higher and the possibility of losing the capital invested will be there.