Corporate FDs are nowadays witnessing a rise in popularity compared to Bank FDs as the interest rates offered by corporate FDs are much higher than bank FDs.

Corporate FDs are term deposits offered by financial companies and NBFCs at a fixed rate of interest held over a fixed duration. Industry experts say an investor can choose between different tenures from monthly to yearly as per his/her preference.

George Mitra, Co-Founder and CEO, Fintso, says, “FDs in banks provide guaranteed returns since they are not tied to the market and are not impacted by it. On the other hand, Corporate FDs, also are unaffected by market or interest rate swings. If a corporation offers a set interest rate, it remains constant regardless of market conditions or fluctuating interest rates.” 

Hence, it’s better to first understand corporate FDs and how they work.

What’s a corporate FD and here is how they work; 

  • Credit Ratings

It is important to check credit ratings before investing. The higher the credit rating, the better the financial strength of the company. AAA is one of the top credit ratings a company can achieve on its fixed deposit. 

  • Premature withdrawal option 

An investor can not withdraw the amount even in an emergency. Experts say an investor should scrutinize those before committing their savings. 

How do corporate FDs benefit first-time investors?

Industry experts say, since new investors are still learning how the investment world works, there are certain things one needs to understand so that they can gain by investing in a corporate FD. 

1. Lower risks than Equity of Fixed income Funds

“If an investor is just entering the world of investing, they won’t be looking for risky options – where returns (though potentially higher) are not certain –  as their first choice for an investment,” says Mitra. Corporate FDs are not impacted by the market so provide low-risk investments.

2. Safety and security

Firstly not all companies are eligible to offer corporate FDs. Only such companies that are eligible as per the RBI guidelines are allowed to issue a corporate FD. 

Secondly, with credit agencies like ICRA, CRISIL rating such corporate FDs, experts say one can quickly evaluate the corporate FD’s safety ratings and then choose wisely. For instance, Mitra adds, “Mahindra Finance and Bajaj have AAA ratings on their fixed deposits, making them a favourable investment option.”

3. Flexibility in tenure terms

Most of the corporate FDs offer various flexible maturity terms like the investor can choose the tenure of the fixed deposit as per his financial goal. The tenure will also decide the interest you will receive on the fixed deposit. The Longer the tenure, the higher the interest rate an investor gets.

Conclusion 

In today’s time, when the bank interest rates don’t look so lucrative in the market, experts say corporate FDs are a favourable option to invest your savings. 

Mitra points out, “While a greater rate of interest on deposits may be appealing, it may also come with more risk.” 

To sum it up, according to Mitra if you are looking to take your first step in investing, then a corporate FD will be a great pick after considering companies fundamentals. “Some financially strong companies like Mahindra Finance, and Bajaj Auto have offered great returns for their investors,” he adds.