When talking about investment, Fixed Deposits is the first or second thing which strikes your mind. Bank’s fixed deposits are known to everyone and most of us must be having their fixed deposit accounts in different banks. But, do you know you can get more returns on your FD when you opt for a Company Fixed Deposit. A company fixed deposit offers 1% to 3% higher interest rates than being offered by banks for same time periods.
What is a Company Fixed Deposit?
A Company Fixed Deposit or Company Term Deposit is a type of Fixed Deposit which is issued by companies such as finance companies, housing finance companies and by other NBFCs. The company fixed deposits are one of the best ways by which you can grow your money. These fixed deposits are generally rated for their credibility by the rating agencies such as ICRA, CARE, CRISIL and many more.
Things You Should Know Before Investing in a Company Fixed Deposit
- Higher Interest Rates
One of the best thing about a company Fixed Deposit is the interest rate on it. The interest given by these companies is comparatively much higher than what is given by banks. Corporate Fixed Deposits are the one which pays even more even more than 9.00% interest per annum.
- Periodic Interest Payment Options
A company Fixed deposit provides a number of interest pay-out options. One can choose monthly, quarterly, half-yearly, and yearly interest pay-out option as per his/her requirements.
- Credit Ratings
All the company FDs are rated by autonomous agencies such as ICRA and CRISIL. This offers customers a chance to go for a well-rated fixed deposit.
- Unattractive Post-Tax Return
The company fixed deposits are so tempting and all because of its high interest. However, if you fall in the 30% tax bracket, the interest that is earned on your company FDs will be fully subject to tax. Hence, you can enjoy no tax benefits.
Bank FDs come with a certain guarantee and deposit insurance, whereas company FDs are somewhat risky. Hence, it is must to be aware of the risk factor involved before making an investment in such an FD scheme. However, this risk can be minimized to an extent by going for a well-rated company scheme.
- The Risks Involved
Corporate fixed deposits have default risk involved. In which some of them are the pre-mature withdrawal of the deposited amount. A pre-mature withdrawal sometime leads to a cash-crunch in the company. The second risk is that if the company is not doing well and you invested in a wrong company then you may not get the returns even after the maturity period. So, think twice before you choose your investment company.
- Penalties for Pre-Mature Withdrawal
As we said a pre-mature withdrawal may lead to a cash crunch for the company if it is not going through a financially good phase. To avoid this situation most of the companies charge a penalty if you withdraw your money before the maturity period.
- Check the Track Record of the Company
Before you decide to invest and go for a particular company you should first do proper research for choosing the company. Check the track record of the company and try to know it’s the financial status.
- You are allowed to Have a Nominee
When you go for a company Fixed deposit you are allowed to have a nominee. This is beneficial for the investor as life is unpredictable and god forbid what will happen if the investor is no more when his/her FD matures. In that case, the money will be given to the nominee.
- Understand the Outlines
When you opt for a company FD, you will be given an application form to fill in and sign. You need to read the form carefully and understand each and every terms and condition involved. This will reduce your confusion and make you confident. Moreover, you will be knowing each and everything related to your fixed deposit.
A company fixed deposit is a good option to invest. It gives you more returns than normal FDs and hence, you can grow your money in a better way. The offer is attempting but don’t forget to do proper research before you opt for one. It is a great option for investment but risky as well. So, be smart and choose your company wisely.