Company FD is a term deposit launched by finance companies, housing finance entities, and non-banking financial companies (NBFCs). Company FDs are regarded as a good investment option for various reasons. This article will explore ten things you need to know before investing in a company fixed deposit.
10 Things You Must Know Before Investing In Company Fixed Deposits In India
Attractive Interest Rates
Interest rates are the key when it comes to company fixed deposits, especially since they are pitted against bank FDs. Due to this, companies cannot compromise on the FD interest rates. A higher interest rate has to be the rule. Some corporate fixed deposits pay interest rates higher than 9% per annum.
Multi-Interest Payment Options
Company FD can have multiple interest payout options. The investor can choose from monthly, quarterly, half-yearly, and yearly. Additionally, the depositor can divide his investment cache among more than one company FD of varying tenures.
Importance Of Credit Ratings
Just like the credit score of an applicant decides whether he qualifies for home or personal loan, company FD is rated by independent credit rating agencies, like ICRA and CRISIL. Customers can zero in on the best-rated company FDs by referring to these credit ratings.
When You Are Subject To Tax
Company FDs are attractive. Tempting because of the highly competitive interest rates they command. But there is a risk for those who fall in the 30% tax slab. Then, the interest earned on the company FD would be fully taxed. There would be no tax benefits.
Riskier Than A Bank FD
Bank FDs contain guarantees and deposit insurance, unlike company FDs. The latter is, therefore, riskier than the former. Investors in FDs should be aware of this before they choose to deposit their hard-earned money in company FDs. The risk diminishes when the FD is floated by a company with a high credit rating.
Premature withdrawals could hit the company/corporate with a cash shortage. It would be a risk, and investors should be aware of this.
Penalty For Premature Withdrawal
A spate of premature FD withdrawals could put the company in a cash crunch. Not all FD account holders would get their money back. Some may be denied the monthly FD interest Rate.
Any company can go through a bad phase. The company suffers as much as the company FD account holder. Most companies charge a penalty on premature withdrawals to minimize the risk of a cash crunch.
Company’s Track Record
Even the best company FD can fold and fall by the wayside. To avoid grief and be divested of the monthly interest on FD, do thorough research of the company’s track record, carry out a meticulous background check, and its current financial status.
Company’s Policy On Nominees
Before opting for a company FD, ask if you’re allowed a nominee. It’s wise to enquire to name a nominee for your FD in the unlikely likelihood of you cashing in your chips before the maturity of your company FD.
Know The Term
When opting for the company FD, look closely at the small print and fill in the application form with care. Understand the terms and conditions.
Every company has its pros and cons. The depositor should consider the benefits and risks before taking a call.
Nowadays, company fixed deposits are available for investment, and they are garnering a lot of interest. This is mostly because company FDs offer 1% to 3% higher interest rates than banks. Such FDs get legitimacy from rating agencies ICRA, CARE, and CRISIL. Check the above factors and do thorough research before investing.