Before understanding the term Corporate Fixed deposit one should have a clear understanding of what a fixed deposit is.
Fixed deposit is a kind of a saving instrument. People are generally willing to invest in a fixed deposit is due to below-mentioned reasons:
- Rate of return on Fixed deposits is higher than the saving account
- Interest rate decided, in the beginning, remains fixed for the entire tenure
- Lump sum investment is to be made and interest is earned at regular intervals until maturity of the fixed deposit
- Fixed deposits cannot be withdrawn before maturity. If withdrawn before maturity then you will have to bear the penalty. But penalty differs company to company
WHAT ARE CORPORATE FIXED DEPOSIT/COMPANY FIXED DEPOSITS?
As the name suggests Corporate Fixed Deposit/Company Fixed Deposits are those kinds of fixed deposits offered by corporate companies. Like any other fixed deposits, corporate fixed deposits are quite similar to regular deposits apart from few changes.
Other key features of Corporate Fixed Deposit/Company Fixed Deposits are:
- Rate of return earned on Corporate Fixed Deposit/Company Fixed Deposits is usually high
- The risk involved is also high as there is default risk involved. It means that the company might not be able to pay at maturity if the company goes bankrupt
- Applying for Corporate Fixed Deposit/Company Fixed Deposits is quite simple as application form can be taken through official website of company or from company itself
- Tenure of Corporate Fixed Deposit/Company Fixed Deposits is 1-3 years
WHAT IS THE DIFFERENCE BETWEEN BANK FIXED DEPOSIT & CORPORATE FIXED DEPOSIT?
|POINT OF DIFFERENCE||BANK FIXED DEPOSIT||CORPORATE FIXED DEPOSIT|
|Offered by||Bank||Corporate company|
|Rate of interest||Average||High|
|Application form||Can be taken from Bank or Bank website||Can be taken from Company’s official website or from company itself|
|Tenure period||Ranging from months to years||1- 3 years|
|Guarantee||Amount along with interest is guaranteed to be paid on maturity||No such guarantee as if the company goes bankrupt then the amount might not get paid|
|Medium of investment||Certificate of deposit||Certificate of deposit|
WHAT ARE THE KEY POINTS TO TAKE INTO CONSIDERATION WHILE DECIDING FOR BEST CORPORATE FIXED DEPOSIT/COMPANY FIXED DEPOSITS?
Generally, companies who pay higher interest rate like 14-15% are not always safe as compared to companies who pay 8-10% interest rate. Therefore, to check the health of the company it becomes compulsory for the investor as it can be a risk of loss of total capital also.
Rating agencies play a vital role while choosing Corporate Fixed Deposit/Company Fixed Deposits, as they check the financial health of the company and rate them according to their financial condition.
Also, if the rating agencies have given good ranking to any company, it means that the rate of interest will be low as compared to other companies whose rating is not that well. But, still, the rate of interest is greater than a fixed deposit scheme.
Some of the rating agencies are:
- CARE; etc.