Difference between Corporate FD's and Bank FD's
Fixed deposits can be invested in either bank fixed deposits or corporate fixed deposits. Fixed deposits are low-risk investments that aren't linked to the market. They have been long sought after by conservative and low-risk investors as an option for investment.
What is a fixed deposit?
For a fixed period, you can invest a lump sum amount and receive an interest rate. Depending on which type of fixed deposit you choose, you can receive monthly payouts or earnings at the end.
Corporate fixed deposits
- Corporate fixed deposits can be offered by non-banking financial companies (NBFCs) or corporates. Indian Companies Act Section 58A governs corporate fixed deposits. The RBI has many guidelines and not all companies can offer fixed deposits for corporate purposes. They can be unsecured and do not require collateral.
- Indian corporate FDs are typically short-term and have maturity periods of at least one year but not more than five years.
- Bank fixed deposits do not offer the same guaranteed yield as corporate deposits. Similarities exist in how both FDs are structured. However, the most attractive aspect of corporate FDs over bank fixed deposits is the higher corporate deposit rate. Senior citizens are subject to a higher interest rate.
- It would be necessary to examine ratings from agencies like ICRA and CRISIL, among others. AAA ratings indicate the highest level of safety.
Fixed deposits of banks or bank FDs
Bank FDs can be offered by financial institutions and banks. These can be offered by banks and financial institutions, either state-owned or private. They could include the following:
- Bank FDs have lower interest rates than corporate deposits. Bank FDs offer a higher rate of interest for seniors than corporate fixed deposits in India, but they are still lower than those offered by corporate fixed deposits.
- Bank fixed deposits have a longer tenure than corporate fixed deposits. Bank FDs can be up to 10 years.
- Bank fixed deposits offer a safety option, such as insurance on deposits. However, corporate fixed deposits are not covered by this option. RBI regulations require that any deposit made at commercial or cooperative banks be insured up to Rs 5 Lakh under the Deposit Insurance and Credit Guarantee Corporation (DICGC). Bank fixed deposits provide a high level security. However, corporate fixed deposits do not fall under the DICGC.
Who should choose company FDs?
- A corporate FD could be the right choice for you if you are looking to achieve a short-term investment goal or seek a higher yield than a traditional fixed deposit from your bank. When comparing deposit rates, a corporate FD is an option. Corporate deposit rates are generally higher than bank fixed deposit interest rates.
- You want to diversify your investments and add a high-interest debt instrument.
- A short-term investment goal is important to you, but you don't like stocks or mutual funds due to market exposure. This makes you a risk-averse investor. You may be able to opt for corporate fixed deposits in India, which are not tied to market dynamics.
- If you are looking for a steady income with periodic payouts, you might consider corporate fixed deposits in India. These will allow you to make either quarterly or monthly payments depending on your cash flow needs.
- Before depositing any lump sum, you will be willing to examine the company's credentials. This includes their past performance and the support they received.
Who should choose bank fixed deposits?
- You are conservative and don't want to take on market-linked investments. You may have already invested in certain market-linked options, and you are now looking for debt instruments that are low-risk and secure to balance your portfolio.
- It is difficult to do the research and company fundamentals required to select a fixed deposit company. You may find it more convenient to choose a bank fixed deposit, as you can select an FD scheme from any bank.
- If you are a senior citizen who wants to receive regular income, you may choose a bank FD which offers regular payouts.
- You may also be interested in a short-term investment goal, and want to reinvest your money. You can also reinvest your interest in bank FD plans.
- You can choose the investment tenure that best suits your needs, as tenures vary from seven days to 10 years.
These are the main differences between bank fixed deposits and corporate fixed deposits. Now you can make the right decision.
- What are your goals? You will need to determine if you have short-term goals or long-term goals and then choose one of the bank FDs or corporate fixed deposits in India. You can compare rates and choose the best corporate deposit rate if you are aiming to buy a car in the short term. You could also look for a bank, NBFC/corporate with fixed deposit plans if you have long-term goals. If you're considering a corporate FD, make sure to research the company thoroughly.
- Your risk profile The investment option that you choose will depend on your risk profile. Before making a call, it is important to evaluate your risk profile, including your income, cash flow, and commitments.
- Is your investment portfolio balanced and sufficiently diversified? Look at your portfolio. Decide whether you need a fixed deposit (or bank FD) that offers high potential returns and is stable, lower-risk, but offers higher returns. Your investment goals will determine the answer.
Fixed deposits from banks in India offer lower interest rates that corporate fixed deposits. Check the company credentials before investing in corporate fixed deposit. Then, choose the one that best suits your needs.