Corporate fixed deposits offer 1-3% higher interest rates than bank fixed deposits, but the risk is higher due to the lack of DICGC insurance. Invest in AAA-rated companies, starting with a small amount to secure higher returns.
The promise of 1-3% higher interest rates than bank fixed deposits makes corporate fixed deposits attractive, but are they the right choice for the average investor? NBFCs and housing finance companies raise funds directly through these deposits, promising high returns. However, these pose risks such as credit risk and lack of insurance, necessitating cautious investing.
Key Benefits of Corporate FD
– Higher interest rates: Higher returns than bank FDs, especially for longer tenures, which helps in wealth creation.
Loan facility: Loan can be availed against the deposit without breaking the FD.
Tax benefits: Up to Rs 1.5 lakh exempt under section 80C for tenure of 5 years or more, but TDS applicable on interest.
These benefits give low-risk investors a better option than the market, where compound interest increases wealth.
Hidden Risks and Precautions
Corporate FDs lack DICGC insurance, which makes bank FDs safer up to ₹5 lakh. The principal can be lost if the company goes bankrupt. Liquidity is limited, and premature withdrawals attract penalties. Inflation and interest rate fluctuations impact actual returns. Experts recommend selecting companies with AAA ratings from agencies like CRISIL and ICRA.
What to check before investing?
Be sure to review the company’s financial health, track record, and ratings. Diversify your portfolio, investing only a small portion of your total investment. Suitable for the long term, but better for those who avoid market fluctuations.
Corporate FDs offer the opportunity to earn higher returns, but only smart choices can yield benefits. Invest wisely, considering the risks involved so that high interest rates don’t become a burden. With proper planning, these can prove to be a strong alternative to bank FDs.
