A corporate fixed deposit is a term deposit placed with companies at a prescribed rate of interest. Various Non-Banking Financial Companies and Financial Institutions provide the facility of corporate fixed deposits. Unlike regular Fixed deposits, the corporate fixed deposit is unsecured, and there are no guaranteed returns. The corporate fixed deposit is governed as per the Section 58A of the Companies Act, and the investor cannot sell his document to recover the capital in case the company defaults.
Thus, a corporate fixed deposit is suitable only for those investors who have a risk appetite. So, if you happened to have the required risk appetite, then the returns on corporate fixed deposits are just the right incentive for you. Compared to a regular fixed deposit, a corporate fixed deposit offers higher returns on investment.
The tax benefit on the interest earned from the corporate fixed deposit is limited to Rs. 5000. That means the annual interest earned over Rs. 5000 is taxable. Therefore, to save tax and increase your profits, you can opt to invest in multiple corporate fixed deposits. .
Also, make sure to invest in companies which have AAA+ rating for their corporate fixed deposit. AAA+ is the highest rating for an investment instrument, and it assures that the company is reliable and can be trusted with your money.
Added Content Let us dive down deep into the benefits of investing in corporate fixed deposits
Firstly, Returns: A good investment is such in which we can expect a reasonable rate of return. A corporate FD can fetch you with approx 9.00% per minimum rate of interest rate that is higher than a regular fd.
Secondly, Flexibility to choose the tenure: Well, this acts as a bonus because we have multiple interest rate payout options. Choose at your convenience! Some of the options include monthly, quarterly, half-yearly, and even yearly.
Thirdly, Credit Ratings: Before making any investment decision, the credibility does take a count. All different forms of corporates FDs are rated by authorized agencies such as ICRA, CRISIL, AND CARE. As customers, it builds a trust that we are making the right choice.
How shall I Apply for a Corporate Fixed Deposit?
Well, a smart investment is such that we are fully informed. A proper detail market research before investing is considered to be a good job.
This means that we must have the ability to analyze the entire business model.
The best we can do is to contact a financial advisor who will undergo a complete financial analysis in terms of cash flow, debt-equity ratio, and the current ratio.
Some self To-Do checklist
1. Company Selection acts as the most important call to make.
Choose a company that has a good reputation. Here is the list of points that you must keep a note :
A)The company should have a recognition and brand value
B) Track record of profit-making for the past three years
C) The company should be at least 5 yrs old
D) Must provide dividends regularly
E) Must be listed on Stock Exchange
2. Dont overboard with your finances. Make a calculative decision. Calculate the maximum and minimum amount that you can invest
3. Decide the total tenure or period for which you would like to invest
Your complete journal for corporate fixed deposit is ready. Save, Invest and earn.