What is a Corporate FD in India?

A Corporate Fixed Deposit (FD) is a deposit scheme offered by Non-Banking Financial Companies (NBFCs) or corporates to raise funds from the public.

Investors lend money for a fixed tenure in return for higher interest rates compared to traditional Bank or Post Office FDs.


Why Do Corporate FDs Offer High Returns?

• Corporate FDs carry a slightly higher risk than Bank or Post Office FDs, leading to higher interest rates to attract investors
• Companies use these funds to meet working capital requirements or expansion needs, providing better returns to compensate for risk

Entities Offering Corporate FDs

• NBFCs such as Bajaj Finance, Shriram Finance, LIC Housing Finance, and Mahindra Finance, ICICI Home Finance, etc.
• Corporates across sectors, including real estate, infrastructure, and manufacturing.

Link: Top 5 NBFCs offering over 7% interest rate on their fixed deposits

Pros of Corporate FDs

• Higher Interest Rates: Often 1-3% higher than Bank FDs, helping investors beat inflation
• Flexible Tenures: Offered for a range of durations from months to years
• Credit Rating Insights: Rated by agencies like CRISIL and ICRA, helping investors assess risk

Fixed Deposit Credit Ratings – IndiaRatings

Credit Ratings – ICRA

Higher the Rating, lower the returns and vice versa

For example:

Shriram Finance Fixed Deposits are rated “[ICRA]AA+ (Stable)” by ICRA and “IND AA+/Stable” by India Ratings and Research.

Interest Rates: 7.5 to 8.5% depending on tenure an cumulative/non-cumulative.

Bajaj Finance Fixed Deposits are rated [ICRA]AAA (Stable)

Interest Rates: 7.4 to 8.1% depending on tenure an cumulative/non-cumulative.

Cons of Corporate Fixed Deposits (FDs)

• Credit Risk: Higher default risk compared to Bank or Post Office FDs
• No Deposit Insurance: Unlike Bank FDs, corporate FDs are not insured by DICGC

The Deposit Insurance and Credit Guarantee Corporation (DICGC) is a subsidiary of the Reserve Bank of India (RBI) that insures deposits in banks.

DICGC protects all deposits such as savings, fixed, current, recurring, etc.

• Liquidity Constraints: Premature withdrawals may attract penalties or might not be allowed

Corporate FDs vs. Bank/Post Office FDs

• Safety: Bank and Post Office FDs are safer due to deposit insurance and government backing
• Returns: Corporate FDs offer higher returns, but with increased risk
• Accessibility: Banks and Post Offices have wider reach, making them easier to manage for the general public

Final Takeaway:

Corporate FDs can be a good option for risk-averse investors seeking inflation-beating returns

Before you take the decision to invest, carefully evaluate the issuer’s credit rating and financial stability.

Remember,

Higher Returns will come with Higher Risk

&

Lower Risk will come at Lower Returns