What is Corporate Fixed Deposits?
Updated: Oct 26, 2022
Corporate Fixed Deposits are deposits offered by Non-Banking Financial Services(NBFCs) to raise capital from the general public and institutional investors to facilitate loans to their customers and in turn, provide interest on the money invested. Usually, the interest rates and time period of the investment are fixed. Higher the time involved in locking in the money, the higher the interest rate for the investors. To encourage Senior Citizens to invest in corporate fixed deposits, usually, there is an additional 0.25-0.5% given on the regular interest rate.
7 reasons to invest in Corporate Fixed Deposits:
Better Interest Rate - Corporate Fixed Deposits typically have a higher interest rate than traditional fixed deposits. They might range from 1-3% more than what a good, stable bank can offer. The current high inflation scenario has propelled the Reserve Bank of India(RBI) to hike the repo rates, which in turn has led the majority of the Corporate Fixed Deposits providers to increase their interest rates on their deposit offerings.
Minimal risk - Credit ratings are assigned to every Corporate Fixed Deposits. Ratings are periodically revised based on multiple factors affecting the NBFC. The highest or the safest rating typically is AAA, which signifies maximum liquidity, least possibility of default, and high repayment ratio, while the rating D, on the other hand, means Default on the amount invested.
Flexible tenure - The tenure of these deposits typically starts from 12 months to 60 months, meaning one has widespread choices on the investment horizon and can distribute their money across various time horizons based on their requirements.
Invest based on financial Goals - Based on the financial goals, one can estimate the amount required to invest as returns are assured over the given time horizon. This helps set and plan financial goals in advance and eventually accomplish them by making suitable investments in Corporate Fixed Deposits.
Ease of Investing - Investments can be made through forms, but the more popular ones are through digital modes. With a click of a button, investments can be easily completed through various apps and websites.
Flexible Payout structure - Corporate Fixed Deposits generally offer two modes: Cumulative and Non-Cumulative. The first option allows investors to accumulate their capital, and on maturity, the total amount is paid out to the investor along with interest accumulated. The second option has a definite payout mechanism, wherein investors can choose the payout frequency, usually monthly, quarterly, half-yearly, and annually. This helps in providing a regular source of income.
No market volatility - Corporate Fixed Deposits remain unaffected by the ups and downs of the market. In short, there is no volatility which causes immense panic among investors. One can remain free of any tension as the amount is locked in at a fixed rate for the specified period.
There are multiple reasons which favor investors to opt for Corporate Fixed Deposits. Investors can consider corporate fixed deposits as part of their asset allocation, especially for short-term goals. In all scenarios, it is essential to consult a financial advisor before investing. AssetPlus launched Fixed Deposits in partnership with Mahindra Finance and Shriram Transport Finance Company.