What Are The Corporate FD and How it Works ?
India is one of the very few places on earth where savings far exceed spending. People love to save for the future, as there are plenty of investment options to choose from.
However, when it comes to investments for getting secured returns, a fixed deposit is the clear winner. It is hard to get an Indian citizen who does not know about fixed deposits. But, not all financial institutions offer the same kind of fixed deposit interest rates. This is where a corporate FD comes into the picture.
What is Corporate FD?
A corporate FD is a fixed deposit scheme offered by housing finance companies (HFC) and non-banking financial companies (NBFC). Unlike banks, they cannot create savings or current accounts, but primarily use that money to disburse loans like personal loan, home loan, loan against property, and various other loans. As their establishment costs are lesser than banks, they offer higher fixed deposit interest rates than traditional financial institutions like banks.
How Can You Apply for a Corporate Fixed Deposit?
The application process of a corporate fixed deposit is the same as that of a bank deposit. You can download the application form online or collect it from the company’s nearest branch, attach documents like PAN card, Aadhar card, and cheque, and deposit it. However, some HFCs like PNB Housing Finance have introduced doorstep service delivery, in which a representative comes to your registered address to collect the documents and open the account. Hence, you can now get a new fixed deposit at attractive interest rates without ever visiting the branch.
What are the Salient Features of a Corporate Fixed Deposit?
A corporate fixed deposit offers several benefits which a traditional financial institution never offers. The following are a few:
High Returns
In an age when maximum fixed deposit interest rates offered by banks are hovering near 5%, a corporate FD makes you richer by 6.70% every year. And when you choose a cumulative fixed deposit with a long tenure of ten years, the yield to maturity can be as high as 9.13%.
Hence, a corporate fixed deposit can give you more interest on your investments than banks.
High Security
The most frequently asked question about a corporate fixed deposit is whether it is as safe as a bank deposit. The straightforward answer is ‘Yes’. When you invest in a bank deposit, only up to INR 5 lakh is secured. However, NBFCs get ratings from world-class credit rating agencies, such as CRISIL. A credit rating agency evaluates multiple factors and issues a rating to corporate FDs. Fixed deposits with a rating of FAA+ are considered as the best in class. Moreover, an HFC or NBFC has to take multiple clearances from RBI and the Ministry of Corporate Affairs to be eligible to take deposits from the public.
Hence, corporate fixed deposits with FAA+ rating and approval from the RBI are the safest financial instruments you can get.
Conclusion
Ever since corporate fixed deposits were introduced, they have redefined the way people look at fixed deposit interest rates. The interest rates offered by HFCs and NBFCs have consistently defied gravity. Hence, if you want higher returns from your deposited capital, it makes sense to open an FD account right away.