All investor categories require a steady income flow to keep set-off against the volatile nature of other investments. Diversification is the key to a healthy portfolio. Fixed deposits are the best risk-free investment option as they offer high-interest rates as compared to any other fixed-income investment.
Fixed deposits are offered by banks and Non-Banking Financial Companies (NBFCs). Fixed deposits offered by NBFCs are known as Company fixed deposits or Corporate Fixed Deposits.
Owing to the developments on the political and economic front in India, there has been a sudden upsurge of FD interest rates by banks and NBFCs. Hence, it makes sense to lock-in your investments at a high-interest rate by creating new fixed deposits. Let’s look at some important parameters that you should consider before you decide to invest in a corporate fixed deposit.
Factors to be considered before investing in Corporate Fixed Deposits:
- Interest rates: Rates of interest vary from one financial institution to another and remain fixed until the maturity. Tenors range from 7 days to 10 years, and longer tenor offers a higher rate of interest. Corporate FDs offer a higher rate of return as compared to banks along with renewal benefits and provide extra leverage to senior citizens. Bajaj Finance, according to its new scheme in 2018, has increased its Interest rates on FD to 9.1% for senior citizens. It also offers a 15-month special tenure FD which earns 0.25% extra when compared to a regular 12-month fixed deposit.
Comparison between company fixed deposits on the basis of such additional interest rates might be a good idea to earn a fruitful addition over a period of time.
- Maturity: Returns on corporate FDs vary according to tenor. Fixed deposits are available for tenors ranging from 7 days to 10 years. It is advisable that instead of setting tenor for 1 year, you should split your investment and into multiple fixed deposits of different tenors like 1, 3 and 5 years. Renewing these FDs for a higher maturity period each time will help you earn regular income. By diversifying your deposits across various maturities, you can also take advantage of averaging of changing interest rates. In order to apply such an approach of diversification, it is important that you pick a corporate fixed deposit that offers flexibility to choose tenors.
- Interest payment mode: Interest payment mode can be set according to your preference. If you are interested in monthly, half-yearly or quarterly interest payment mode, you can go for the non-cumulative option in a fixed deposit. Alternatively, you can opt for cumulative fixed deposits if you want interest payment on maturity along with the principal amount. By using this option coupled with a high-interest rate, you can create a growing corpus over a period of time. You should pick corporate deposits that offer flexibility to choose interest payment frequency as per your needs. For instance, Bajaj Finance FD offers a lucrative interest rate for both the offers.
- The credibility of the lender: Corporate FDs are rated by reputed third-party agencies like CRISIL and ICRA Rating for their safety and stability. High credit ratings mean your investment is in safe hands, and your returns are guaranteed. For instance, Bajaj Finance FDs have a proven track record of offering timely dividends to investors, and hence they are rated FAAA/Stable by CRISIL and MAAA/Stable by ICRA.
- Withdrawal before the maturity: If you choose to close the fixed deposit before maturity, interest is paid at the applicable rate till the deposit remains with the lender. With a penalty of deduction of 0.55-1% as stated in the terms, you can withdraw your deposit. However, you lose that proportion of your interest earnings which will be penalized. You should check the withdrawal terms of the corporate FD you choose to invest in.
You should check all the parameters mentioned above before investing in corporate FDs. Your investments should be done with the motive of maximizing gains and minimizing risks. Fixed deposits fulfill this criterion. Also, you should be on the lookout for the best corporate FD rates along with smart investing strategies that can do wonders to your portfolio.
Company deposits like Bajaj Finance Fixed Deposits are high-yielding and pay a higher interest rate when compared to bank fixed deposits. Most banks are currently offering FD interest rates from 5.5% to 7.5% depending upon the tenor. However, in the case of Bajaj Finance Fixed Deposits, you can earn up to 8.75% interest rate for a tenor of 3 years or more.