A corporate FD is a type of fixed deposit issue by several companies, including financial institutions, housing finance companies, and non-banking financial institutions. Investing in a corporate FD can be a great way to grow your money rapidly if you want to take advantage of their quick growth rate.
A corporate fixed deposit’s interest rate is higher than a bank’s fixed deposit account and you can also do maturity amount comparison between corporate FD and bank FD using fixed deposit rates calculator tool.
Corporate fixed deposits are prevalent among senior citizens because they offer guarantee returns, usually 1% to 3% higher than banks. Corporate FD schemes pay interest monthly or quarterly, and investors find them very appealing to supplement their regular income from pensions and other sources. Among the target segments for Corporate FD schemes are senior citizens, tax-exempt individuals, housewives, etc.
Listed below are the top 6 things to know about corporate fixed deposits
Premature Closure
Corporate FD does not allow the premature closure of the deposit before six months have pass. If you withdraw your investment before maturity, you will face a penalty. Additionally, the procedures of premature closure can be quite challenging since they involve a lot of paperwork to complete. In the case of bank deposits, though there’s a penalty for the early withdrawal of funds, investors are still free to close their deposits at any time.
Regulations
Fixed deposits held by banks are control by the Banking Regulation Act, 1949, which operates in complete accordance with the regulations of the RBI. Fixed deposits held by corporate, on the other hand, are control by Section 58-A of the Companies Act of 1956. The Companies Act states that, if a corporate is winding down its operations, it should provide first preference in payments to the holders of equity shares rather than the holders of fixed deposits. This provision contributes to the riskiness of fixed deposits held by corporate.
Study corporate FD application form in detail
An application form for a corporate fixed deposit scheme must be carefully review to fully understand any regulations relate to early withdrawals, etc. Additionally, the corporate financials, such as profits produce by the company in the last three years and dividend track record, which are mandatorily print in the application form, must be look into prior to making a decision to invest in corporate FD.
Make Sure to Spread Out Your Investable Assets
Investors shouldn’t place a significant amount of their spare capital in the fixed deposit SCHEME of a single corporate. Instead, they need to diversify the same amount by spreading it out across four or five different corporate.
Default Risks
There is a possibility of losing money on corporate fixed deposits. This danger typically arises when investors take their money out of the market too soon. This could put the corporate in a position with limited capital access. If a corporate is confront with difficult circumstances, it will be unable to restore the maturity amount and will likely default on the payment. For instance, in the most recent few years, some corporate has allegedly default on the repayment of its interest and maturity. The lack of available funds prevent the corporate from meeting its obligations to investors, including paying interest and principal.
Investment Safety
Even though corporate FD offer higher interest rates than bank fixed deposits. But corporate FDs are not as secure as bank FDs. However, security is not provide for corporate fixed deposits beyond the initial 1 lakh rupees invest by customers in banks. If the corporate declares bankruptcy, the money the investors contribute could be lost. Compare to the interest rates offer by banks on fixed deposits, the interest rates offer by corporate on fixed deposits are typically higher.
Conclusion
Corporate FD is a relatively simple and safe investment option for traders and investors with fixed incomes. Taking into account all of the factors above can be a good way for you to enhance your quality of life and have mental peace since you do not experience the volatility and risk associate with equity investments.
