What are Corporate Fixed Deposits and how are they different from regular FDs?

Disclaimer: The ideas and thoughts expressed in this article are not any kind of investment advice intended to influence anybody to take investment decisions. Please note that the numbers shown in the article are not accurate. Please consult your advisor before taking any investment decision.

Regular FDs as we know them are fixed deposits offered by Banks and in India, one of the preferred investment options because of being considered a risk-free investment option offering fixed (non-volatile) returns.

However, banks are not the only institutions offering such fixed deposits. Many non-banking financial services companies (NBFCs) (companies engaged in providing housing loans for eg.) also offer fixed deposits as an investment option to the general public and institutional investors, and these are called Corporate Fixed Deposits.

Which are the companies in India offering corporate FDs?

These NBFCs raise capital through these FDs from the investors and offer loans to their customers in turn. For eg. companies like HDFC, Bajaj Finance, Shriram Transport Finance, Mahindra Finance, PNB Housing, and LIC Housing, to name a few, offer these Corporate Fixed Deposits to the general public and to institutional investors to raise funds to support their lending business.

Are returns comparable with regular bank FDs?

These corporate deposits offer a higher return rate compared to reputed banks. Mostly, the return rates increase with an increase in tenure, and the senior citizens are offered some additional interest rates (to the tune of 0.25% to 0.5% more)

What is the investment tenure for these deposits?

For individual investors, the tenure of these deposits typically starts from 12 months to 60 months, and few also offer up to 120 months. So, can be chosen accordingly for varied investment goals. 

for Institutional investors, the tenure of these deposits is typically in days like 30, 60, 180, etc. to suit the liquidity needs of a company investing in these deposits.

What are the payout options available?

These Deposits generally offer both Cumulative and Non-Cumulative modes of payout. The cumulative option allows investors to accumulate their capital, and on maturity, the total amount is paid out to the investor along with interest accumulated. The non-cumulative option offers investors the choice of payout frequency, usually monthly, quarterly, half-yearly, and annually. This second payout option can be used for providing a regular source of income in case there is such a need.

Are these FDs safe as Bank?

Globally recognized rating agencies like CRISIL, ICRA, and CARE provide opinions on the creditworthiness of an institution that should be considered before investing. These ratings apply to both Bank and Corporate FDs. Credit ratings are assigned to every Corporate Fixed Deposit. Ratings are periodically revised based on multiple factors affecting the NBFC. The highest or the safest rating typically is AAA, which signifies maximum liquidity, the least possibility of default, and a high repayment ratio.

Are they market linked?

Corporate Fixed Deposits remain unaffected by the ups and downs of the market. The amount is locked in at a fixed rate for a specified period like the bank FDs. So, can be considered for short-term goals (especially). 

Read: How to choose a Debt fund suitable to your needs

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