Corporate FD – Fixed Deposit by Company – Complete Guide

As we all know FD is one type of savings instrument. On FD you get a higher interest rate than compared to a savings account. This is a term deposit in which you deposit a one-time lump sum amount and on that, you get interest till maturity. FD is usually offered by banks or NBFC’s. But many of you didn’t know that company also offers FD. Hence, FD offered by the company is not completely different from the FD provided by the bank. But the risk factor is higher in the company FD. Therefore the interest rate of the company/corporate FD is also higher. Hence the FD provided by the company is known as corporate FD. However, in this article we will talk about what is a corporate fixed deposit, what are the benefits, and the limitation of the fixed deposit by the company and FD rates for the company.

What is Corporate Fixed Deposit?

• When the corporates have to raise funds they have two options.

1. They can go to the bank and take a loan, where they have to pay interest rates.
2. They can directly go to the customers and raise funds from them.

• In the second option, the customers give funds to the company and in return, the company promises some interest rates to the customers. Hence, this is known as corporate FD.
• Now that the company is raising funds directly through the customers. It is obvious that they have to give a higher interest rate to the customer compared to the bank.
• And secondly, the company wants the amount of interest they are paying in the bank, at least that much amount of profit they can earn.
• So considering all the above points, the company gets in the middle and that much amount of interest you get as a customer.

Advantages and Disadvantages of Corporate FD

Advantages

• The interest rate is more compare to the bank. You can assume that the interest rate will be 1-2% more than the banks.
• Additionally, for senior citizens, the interest rate is 0.25% higher.
• You will get a fixed interest rate until maturity.
• Higher liquidity, that means if you want to break your FD earlier than the fixed time you can do that. In this condition, you will get a minor penalty that is around 1-2% of your interest.

Disadvantage

• Taxable Return – This FD is also a taxable return like your normal FD. Hence, you have to pay your income elaborated tax on your interest.
• High Risk – Due to recession or any other reason if the company becomes bankrupt, then your money can be stuck.

Types of Corporate FD

Cumulative FD

• In cumulative FD you will get your final maturity amount at the end of the term.
• Additionally, in this corporate fixed deposit, your interest rate is continuously compounding. As a result, you get interest over your interest rate.
• And due to this compounding effect, all your wealth is grown, no matter in which company you are putting your money.
• For example, if you have put 10 lakh Rs in cumulative FD. Thus, you are getting an interest rate of 8.4%. So this 8.4% is your fixed interest till the end term. So, if we talk about 10 lakh Rs with respect to 8.4% interest your amount will be Rs 12,56,000 /- in 3 years, and in 5 years it will become Rs 15,20,000 /- and in 10 years it will become around Rs 23,90,000 /-.
• However, if you want to beat any goal. That means if you want to do goal investment in that case you can go for cumulative FD.

Not-Cumulative FD

• Similarly, in non-cumulative FD you can take total interest on a monthly/quarterly basis or annual interest payout.
• In this corporate fixed deposit, there are no compounding benefits because you are getting interest on a monthly or quarterly basis.
• Also, this corporate fixed deposit is beneficial for those who are planning for their retirement.
• For example, if you have put 20 lakh Rs at 8.4% of interest. Then your monthly payment will be around Rs 14,000 /-.

Corporate FD interest rate depends on

• Duration of FD, for example, long-duration FD may offer a higher interest rate.
• Also on cumulative and non-cumulative FD’s.
• As well as, there is a higher interest rate for senior citizens.
• The higher interest rate for employees.
• Moreover, higher interest rates may be extended to the family of an employee.
• Furthermore, lower credit ratings FD may offer a higher interest rate.

Taxation/TDS on Corporate FD

• The total amount of profit /interest you earn on a corporate FD is taxable.
• You have to mention the interest on ITR in the column of ‘income tax from other sources’.
• TDS is also applicable. But you can save it by filling up 15G/15H form.
• Corporate FD is not applicable to tax repayment.

Tips to Choose Corporate FD

There is a number of options for people to invest their money. However, the bank FD is considered as one of the most popular options, as here your capital is secure and one would get the total amount once the FD is mature. However, if you want higher returns on your investment, then the corporate FD is a great option for you. Corporate FDs are fast becoming popular investment options due to the fact they offer high-interest rates. But, no matter how great a corporate FD maybe before investing there are certain tips one should take into consideration before investing in a company fixed deposit.

Risk Factor

Corporate FDs are risky. Corporate FD is tempting due to the high-interest rate that the company provides as compared to the FDs offered by private or public sector banks. However, they are unsafe investment options. As they are not secured by the asset of the company. The chances of default in payment of interest and principal are significantly higher than in a bank.

TDS Deduction

You have to be very careful regarding the deduction of TDS. In the case of company FD, TDS is deducted if your interest income crosses Rs 5000 /-. But in the case of bank FD, TDS is only deducted after income interest crosses Rs10,000 /-.

Company Credibility

Check the credibility of the company. However, choose the company which is well managed and credible, with a long history of profitability. Generally, don’t rush for anything. Do therefore check before you invest your money in corporate FD. Do the complete research on the company’s background, company past performance, customer service, and financial performance of the company. Also, carry out proper research on directors and promoters of the company. This will give you an idea of whether the company is secure enough or not for investment purposes.

Credit Ratings

Credit rating is the ratings given by some well known and knowledgable companies to the company corporate FD. Therefore, choose the company having the highest FD credit ratings. Hence, the higher the ratings, the safer the investments. Given below table shows the different companies giving FD ratings and their highest to lowest ratings.

Companies	ICRA	CRISIL	Fitch	CARE
Highest Credit Ratings	MAAA	FAAA	tAAA	AAA
	MAA	FAA	tAA	AA
	MA	FA	tA	A
	MB	FB	tB	BBB
	MC	FC	tC	BB
	MD	FD	tD	B
				C
Lowest Credit Ratings				D

Tread Caution

Generally, it will be tempting for investors to go for company FD as they pay higher interest. But they can be risky and may default on the payment of interest or even the principal amount. Additionally, the company fixed deposits are unsecured where the repayment of interest is not secure or guaranteed.

Others

• Invest in publicly-traded companies, because this will help you to easily track your investment.
• Invest in real interest rates.
• Before investing in any company, check the balance sheet of 2-3 years of that company, And also check the profitability portion of that company. Hence, invest in the company which is in continuous profit.
• Past repayment history- Check whether the company has done the repayment of the past investors on time or not.
• Check whether the company is giving you flexible tenure or terms of maturing.
• Additionally, check the flexible withdrawal facility.

Difference Between Corporate FD and Bank FD

Bank FD and Corporate FD are very much similar to each other. But there are minor differences between them which we had discussed below.

Particular	Corporate FD	Bank FD
Given by	Companies	Bank
Rate of Interest	High	Average
Risk Involved	High	Low
Tenure	6 months to 3 years	Ranging between month to year
Governed by	RBI	Company Act

Loan against Corporate FD

• As we know that we can take a loan against bank FD, similarly we can take a loan against corporate FD.
• Most of the companies give loans against fixed deposits up to 75%of the deposit amount.
• This may vary from company to company offering even % of the loan against FD along with interest rate may vary.
• Please check all loan-related terms before investing if looking for availing loans against corporate FDs.

Conclusion

Now the question arises that should we take corporate FD or not. In this case, some will tell that the risk factor is very high in the company fixed deposit. Generally, every product has one risk. For example, if you invest in stock markets there is a risk that your return depends upon the market condition. Click here to know everything, about the Indian stock market. Now if we talk about bank FDs which is considered the safest option by the people. But it is not completely safe, the insurance on your total number of deposit on the bank is 1 lakh Rs including all your savings account. So, it is not like that if any bank or the financial corporate will become bankrupt, your money is safe. It totally depends on you which types of investment you required.

FAQ Regarding Corporate FD

Editor’s Note | Corporate FD

Due to the COVID-19 pandemic, every sector in the world has been affected. Therefore, let’s talk about the effect of COVID-19 on fixed deposits in India. Due to the ongoing scenario, many public or private banks have cut off their FD interest rates. Due to this people are opting for corporate FDs to get higher interest rates. The biggest government bank, SBI has also reduced its interest rates on FDs. And this is the first incident that the interest rates of SBI have gone below 6%. Therefore people are looking corporative FD as the more lucrative option than bank FD.