By The BuyT Desk
Corporate FDs is also known as the company FD. They are fixed deposit which is given by non-banking finance companies. The corporate FDs provide a slightly better interest rate than your regular conventional bank FDs. The interest rate of bank FDs is in the range of 3-5%. On the other hand, corporate FDs gives you a chance to invest in a fixed investment instrument with an interest of around 1-2% more than the bank fixed deposits. But before you decide to deposit your hard-earned money in a corporate FDs, you must know this investment instrument well as they come with certain risks.
Corporate Fixed Deposits
Private companies and NBFCs offer saving cum investment tools known as corporate FDs. Precisely like a bank FD, an investor deposits his/her money for a fixed term at a prescribed interest rate. The tenure of a corporate FD can be anywhere between 1, 3 or 5 years.
Corporate FD Vs Bank FD
Both the FDs re different from each other. First and foremost bank FDs are by banks, and corporate FDs are by companies. Secondly, bank FDs are considered more secure as the capital is covered under insurance guarantee by DICGC. Money of up to Rs5 lakh is safe, under this insurance cover. If the bank fails at any time, depositors will get back up to Rs5 lakh from the bank. But corporate FDs have no such covers. The fear of default risk always surrounds your deposit. If the company providing corporate FD fails or faces any financial distress, you may stand a chance to lose your money.
Tenure & Partial Withdrawal Rules of Corporate fixed deposit
Depending upon the individual company’s plan, corporate FD’s tenure may differ from 1, 3 or 5 years. Mostly the corporate deposits have a three-month lock-in. After the lock-in is over premature withdrawal is allowed but with penalty. There is no provision of partial withdrawal in corporate FDs. Once you withdraw your money, the FD is closed.
How to invest in corporate fixed deposits?
An investor can apply for a corporate FD either by contacting that particular company online or offline.
Taxability of Corporate FD
The interest of corporate FD is fully taxable. The earned interest gets added to the investor’s income, and he/she is taxed as per the applicable income tax slab rate.
Careful when you decide to invest in a corporate FD?
Since corporate FDs are not covered under the deposit insurance scheme of DICGC, then one should always look at the company’s credit health providing the FD. The investor must look out for AAA-rated or ‘stable’ rated corporate FDs only before their investment.
