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Company Fixed Deposits – Are they safe to invest in 2020?

The fixed deposits which are issued by the financial and non-financial companies are known as company fixed deposits. The company fixed deposits provide a higher rate of return than the FD rates of the banks and can range up to 5 years.

Types of company fixed deposit schemes:

There are two popular FD schemes offered by the corporate sector:

  1. Cumulative Fd scheme: Under the cumulative FD scheme, the interest gets accumulated with the principal amount provided at the end of the maturity period, and the rate of interest is higher than the non-cumulative FD scheme.
  2. Non-cumulative Fd scheme: The returns on these investment schemes are paid on a regular basis annually or half-yearly. The company offers FD at a lower rate of interest.

How are company fixed deposits different from the bank’s fixed deposit:

  1. Rate of Interest: The rate at which banks provide returns on the fixed deposit is generally lower than the company fixed deposits. The interest rate on company fixed deposits can go as high as 12%, which is a lesser possibility in the fixed deposits provided by banks. Companies may also offer fixed deposits at a higher rate of interest to the employees of the organization. Presently, DHFL bank offers a fixed deposit at the highest rate of interest ranging between 8.50%- 9.25%. 
  2. Tenure: While, fixed deposits provided by the banks can be provided for the tenure of 7 days to 10 years. The mandate of company fixed deposits is less and can vary between 1 year to 5 years.
  3. Withdrawal: The lock-in period of company fixed deposits is three years, and you can withdraw prematurely before the lock-in period; however, you may have to pay certain penalty charges. The tax-saving FD provided by banks has a lock-in period of five years.
  4. Risks: Fixed deposits offered by banks have lesser risk than the company fixed deposits. The interest rates on the bank’s fixed deposit are determined as per the RBI’s repo rate and base rate.
  5. Tax benefits: While tax-saving FD provided by banks provide tax exemption on your investments, the interest earned on the company fixed deposit is taxable under the Income Tax Act.

Choosing the best company fixed deposits:

 While the company fixed deposits offer high returns on the investments, they have higher associated risks as well. It is, therefore, essential that you keep in mind the following factors.

  1. Company’s rating: The two popular agencies which provide ratings to various financial securities in India are CRISIL and ICRA. These agencies offer ratings on the net value of the funds and the quality of the funds provided by different agencies. Before investing in any fixed deposits, it is essential to check the credit rating of these agencies.

Here is a Crisil Rating List for Fixed deposits

  •  NM- Not Meaningful
  • FD- Default
  • FC-High risk
  • FB- Inadequate safety
  • FA-Adequate safety
  • FAA-High safety
  • FAAA-Highest safety
  1. Interest rates: Along with checking the credibility of a different organization, you must also compare the interest rates offered by a different organization. The RBI regulates the rate of interest on the company fixed deposit. 
  2. Tenure: Choosing the FD scheme for up to three years can be a considerate option as the policies of the organization may change from time to time.

fixes deposit

 Thus, without a doubt, company fixed deposits offer a higher rate of return than a fixed deposit provided by the banks. However, one must check the reputation of the organization before making any decision about investing in their fixed deposits as they face default risk.

Summary: Company Fixed Deposits – Are they safe to invest in?

The fixed deposits which are issued by the financial and non-financial companies are known as company fixed deposits. The company fixed deposits provide a higher rate of return than the FD rates of the banks and can range up to 5 years. Under the cumulative FD scheme, the interest gets accumulated with the principal amount provided at the end of the maturity period. The returns on non-cumulative FD schemes are paid on a regular basis annually or half-yearly. 

  • The interest rate on company fixed deposits can go as high as 12%. Companies may also offer fixed deposits at a higher rate of interest to the employees of the organization. 
  •  The mandate of company fixed deposits is less and can vary between 1 year to 5 years.
  • The lock-in period of company fixed deposits is three years, and you can withdraw prematurely before the lock-in period;
  • The interest earned on the company fixed deposit is taxable under the Income Tax Act.

Choosing the best company fixed deposits:  While the company fixed deposits offer high returns on the investments, they have higher associated risks as well. It is, therefore, essential to check the credit rating of CRISIL and ICRA. 

Types of Fixed Deposit Schemes as Stable Investment Plans.

A fixed deposit scheme, provided by banks and non-banking institutions is an investment scheme where you can earn high returns on your investments at a fixed rate of return. The rate of interest on fixed deposits is determined by as per the RBI policy on Repo and Base rate.

There are three popular FD schemes available in India:

  1. Regular FD scheme: A regular FD scheme is invested for a fixed tenure of 7 days to 10 years and earns a high rate of return. You can also get the overdraft facility against the FD investments. In the case of a regular FD scheme, you can withdraw the funds prematurely after paying certain charges.
  2. 5-year Tax-Saving Fixed Deposit Schemes: You can invest money in your FD account for a fixed tenure of 5 years. Under Sec 80 C of the Income Tax Act, you can tax benefits up to Rs. 1.5 lakhs in a financial year. However,  you cannot withdraw the funds before the maturity date.
  3. NRE/ NRO Fixed Deposit Schemes: Non-resident Indians can invest in the two FD schemes; NRE(Non-resident external) and NRO( Non-resident Ordinary) accounts. NRE FD Scheme is beneficial for the non-residents who want to move liquid financial assets of their country to domestic currency. They can get tax exemptions on these investments as the FD scheme. In the case of the NRO Fd scheme, while the interest earned on the FD scheme is repatriable, you can repatriate the principal amount only up to certain limits. Also, you cannot get tax exemptions on NRO FD schemes.

Check also: Use maturity calculator for FD interest rates

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