Company FD gives higher returns than banks: What should investors do?

Before investing their money, investors should check the credit rating of these Company Fixed Deposits to determine the legitimacy of the institution. A higher AAA rating indicates a lower likelihood of interest and principal repayment defaults. When it comes to AAA rated company Fixed Deposits (FD), Bajaj Finance Fixed Deposit is rated CRISIL AAA/Stable and [ICRA]AAA (Stable) and the company is now offering annual interest rates ranging from 7.05% to 7.50% for tenors ranging from 12 months to 60 months.

ICICI HFC Fixed Deposit is rated AAA/Stable by CRISIL, AAA/Stable by ICRA and AAA/Stable by CARE, and promises interest rates ranging from 7.00% to 7.50% for tenors ranging from 12 to 120 months Is. HDFC Limited Fixed Deposits have received AAA ratings from both CRISIL and ICRA for 28 consecutive years HDFC Company FD interest rates range from 6.85% to 7.20% with tenures of 12 to 120 months.

The interest rates on Mahindra Finance Fixed Deposit range from 6.75% to 7.50% and it is rated “IND AAA / Stable”. CRISIL has rated LIC HFL Fixed Deposit as AAA/Stable, and the firm offers an interest rate of 6.75% to 7.50% for tenures ranging from 1 to 5 years. For the past 30 years, Sundaram Finance Fixed Deposit has maintained an AAA rating, and its interest rates vary from 7.20% to 7.50%.

The interest rates on fixed deposits offered by the above AAA-rated companies are much higher than those offered by SBI, HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank and other leading banks. But let us talk about whether debt investors can consider investing in Corporate Fixed Deposits to earn higher returns.

Zubin Dabboo, Head – Marketing, Epsilon Money Mart, said, “The growing popularity of corporate FDs and the attractive returns they offer have caught the attention of investors. Many advisors have also started adding a fixed proportion to their clients’ portfolios. But there is some risk involved – namely there is no guarantee of capital safety. Default risk exists because they have all kinds of paper. If the company whose paper is held by the investor goes through a rough patch or gets shut down, then the trouble for the investor, similar to what is happening in the case of bank FDs, is negligible.

“Corporate FDs may also not be the most tax efficient, especially if you fall under a high tax bracket. The profit from corporate FD is taxable as per your tax slab. Factors like lock-in period, penalty and loss of interest are also involved in case of premature withdrawal. Corporate FDs can be suitable for investors who do not have emergency liquidity needs and have a short term vision of 1-3 years and should be a part of your asset allocation, if it suits your risk profile And after checking with your financial advisor,” said Zubin Dabboo.

CA Manish P. Hinger, Founder, Fintu said, “When it comes to Company/Corporate Fixed Deposits, this bank offers higher interest rate as compared to Fixed Deposits. However, corporate FDs carry a higher level of risk as compared to bank fixed deposits. Investors must check the credit rating of these Company Fixed Deposits to check the credibility of the issuer before investing their money. Higher rating means less chance of default in repayment of interest and principal. On the other hand, a lower rating means a higher risk of default.”

“Apart from checking the credit rating, investors should be aware that the company’s fixed deposits are not covered by the Deposit Insurance and Credit Guarantee Corporation. Bank FDs, on the other hand, are covered by DICGC up to 5 lakhs. This means that in case of default of the bank; Your FD amount up to 5 lakhs is insured, but it has no meaning on company FDs. Therefore, keeping in view the high risk, conservative investors should avoid investing their money in corporate FDs and only moderate to aggressive risk appetite investors should invest in these corporate FDs after fully understanding the risk involved. Should consider,” CA Manish P. Hinger.