Updated on 5 Feb 2020.
You must be aware of the current fixed deposit rates offered by banks. With consecutive rate cuts by RBI, fixed deposits rates offer by Banks came down drastically.
In this declining rate scenario, 8.50% to 9.50% p.a. return from corporate fixed deposit looks attractive in comparison to 6% to 7.50% p.a. fixed deposit offers by banks. However, companies in no case can offer interest rates more than 12.5% p.a. as capped by Ministry of Corporate Affairs (MCA).
What are Corporate Fixed Deposits
Corporate or Company Fixed deposits are placed by investors with big finance companies for a fixed tenure at a fixed rate of interest is called Company Fixed Deposit. Financial institutions, Housing Finance companies and Non-Banking Finance Companies (NBFCs) accept such deposits.
Company Fixed Deposits offer better interest rates as compared to Bank Fixed Deposits.
Why should invest in Corporate Fixed Deposits
The answer is pretty obvious, the corporate fixed deposit schemes offer higher interest rates for the same tenure in comparison to bank fixed deposits. But before getting excited and invest in a corporate fixed deposit, one must know a few caveats attached to it, that I will discuss in the later sections.
Top 11 Highest interest-paying Corporate Fixed Deposit in India
Some of the best and top-rated corporate fixed deposits scheme with interest rates
|Company||CRISIL/ICRA Rating||Interest Rate|
|ICICI Home Finance Ltd.||CRISIL FAAA||9.33%|
|Shriram Transport Finance Ltd||CRISIL FAAA||8.88%|
|Bajaj Finserv Ltd.||CRISIL FAAA||8.75%|
|DHFL||CRISIL* A 1+||9.00%|
|Mahindra Finance Ltd.||CRISIL FAAA||9.00%|
|Shriram City Union Finance Ltd||ICRA MAA+||8.88%|
|PNB Housing Finance Ltd.||CRISIL FAAA||8.45%|
|HDFC LTD||ICRA MAAA||7.98%|
|LIC Housing Finance Ltd||CRISIL FAAA||8.35%|
|Sundaram Home Finance Ltd.||CRISIL FAAA||8.00%|
Company Fixed Deposits Ratings with meanings
Two Ratings are considered in India for the authenticity of these schemes – CRISIL and ICRA. There ratings are given below.
|CRISIL Fixed Deposit Ratings|
|FAAA||Highest Safety/Most Stable|
|ICRA Fixed Deposit Ratings|
|AAA||Highest safety/Lowest credit risk|
|AA||High safety/Very low credit risk|
|A||Adequate safety/low credit risk|
|BB||Moderate risk of default|
|B||High risk of default|
|C||Very high risk of default|
|D||Defaulted or expected to be in default|
Who can apply for a CFD?
- Residents of India
- Members of Hindu Undivided Family (HUF)
- Group enterprises/Partnership companies/Corporates
- Educational institutions
What are the documents required for a CFD
- Government-validated ID Proof (any 1)
- Driver’s license
- Voter ID Card
- Aadhaar Card
- Government-validated address proof
- Permanent Account Number (PAN)
- 2 color passport-size photographs
How to Choose the Best Corporate Fixed Deposit Scheme
#1. Credit Ratings
Credit Rating agencies give ratings to corporates after assessing various aspects like earlier repayment, delayed payment of interest and similar important factors.
This is the first and foremost thing which an investor should consider while making investment decision. Even if any company offering high-interest rates but low or no credit ratings, stay away from such offer.
There are major 4 credit rating agencies in India which include CRISIL, CARE, ICRA, and Fitch. From these 4 agencies, CRISIL and ICRA are more popular.
#2. Inherent Risk
Corporate Fixed Deposits are not secured and are not as safe as Bank Fixed Deposits. Chances of not getting back your money is high as there are no regulatory body governing corporates like RBI in case of banks. However, there are credit rating agencies that give ratings to the company after assessing various aspects including repayment but still, the chances of default by the company are pretty high.
#3. Interest Rates
As we all know that longer tenure tends to fetch high-interest rates but you must be aware that high-interest rate comes with high risk. A company offering high-interest rates may not be able to pay the interest earned or maturity amount on time.
Despite having high credit ratings, you shouldn’t go with longer tenure in Corporate Fixed Deposits. There are two types of plans offered by corporate fixed deposits: Cumulative and Non-Cumulative.
Under non-cumulative plans you can choose to receive the frequency of accrued interest i.e. monthly, quarterly, half-yearly or yearly.
While under cumulative plans you will get the interest along with the principal amount at the time of maturity only.
The benefits of opting cumulative plans are that you will receive high-interest rates due to compounding while non-cumulative plans will get you simple interest. But not all corporate fixed deposits come with the cumulative option, you should enquire with the concerned company.
#4. Tax Treatment
If you are thinking – Is interest on Company FD taxable? The answer is Yes. You should treat it like a common bank FD and the same tax rules are applied to Corporate FDs.
#5. Premature Withdrawal
Similar to Bank Fixed Deposits, Corporate Fixed Deposits also levy penalty on premature withdrawal. The penalty varies from company to company, so you should read the rules before investing.
Do’s and Don’ts for Corporate Fixed Deposits Investors
- Always choose company having high ratings of AAA or AA. Avoid investing companies with no ratings or ratings below AAA or AA.
- Don?t judge company by its name because even establish companies with brand value have defaulted in payment.
- Don?t get lured by high interest rates as companies trap investors by offering high interest rates.
- Don?t put entire money in one deposit. Split the money across 4-5 top rated companies to diversify the risk.
- Track the credit ratings of the company regularly. If the ratings slip do not hesitate to withdraw your money even if it attracts small premature withdrawal penalty.
Is it safe to invest in corporate fixed deposits?
I personally do not invest or advise to invest in the corporate fixed deposits because these are not secured and safe. There are many instances where investors are struggling to get their money back.
Not only obscure company like Chain Roop Bhansali’s CRB Capital makes default, even top-rated companies like Aditya Birla power Solutions, Llyods Finance, Kirloskar Investments and Finance, Morepan Laboratories, Micro Technologies, Escort Finance, DCM Financial Services, Plethico Pharma, Nagarjuna Finance, Duncan Industries, and Omnitech Info are in the defaulters list.
I would advise to go with debt mutual funds instead of investing in corporate fixed deposit. As debt mutual funds manages to give high returns of 10% to 12% in the last one year. However, some of the debt funds also invest in corporate fixed deposits but since they are managed by professional which take utmost care and due diligence before choosing any company.