You can make a deposit with a Company in a similar way to a bank fixed deposit. The Company pays a slightly higher rate of interest on deposits made with them, than a bank fixed deposit for a fixed time period.
Corporate fixed deposits are riskier than bank fixed deposits and do not enjoy the safety, bank deposits provide. Your money in a bank FD is guaranteed by the Deposit Insurance and Credit Guarantee Corporation up to INR 1 Lakh in the bank.
The deposits you make in a corporate fixed deposit are unsecure in nature. The Company could default on the interest payments to you, or worse not return your principal amount. You need to be assured that your money is in safe hands
You get a higher rate of interest than a fixed deposit. In times of inflation, you get higher returns, than other fixed income securities.
An investment in corporate fixed deposits of high rating, is relatively safe. Higher the rating, more is its safety.
Senior citizens get a higher rate of interest than a younger person. NRI's can also invest in corporate fixed deposits.
If you invest in corporate fixed deposits of reputed banks, you have a higher degree of safety than private Companies.
If you are a resident of India or an NRI, you can invest in a corporate fixed deposit. Senior citizens, housewives, charitable and religious institutions invest in a corporate fixed deposit.
You can make a premature withdrawal from a bank fixed deposit with a small penalty.
If you withdraw your money from a Company FD within 6 months after you deposit your money, no interest is paid to you.
If you withdraw your money from the Company FD within 6-12 months after the deposit date, you will get a lesser interest say 2-3% lesser than the actual interest rate promised.
You need to check the credit rating of the Corporate fixed deposits before investing your hard earned money with them.
Rating agencies like Crisil, rate corporate fixed deposits. If the corporate fixed deposit has a rating of FAAA, you can be rest assured your money is safe. This is the highest rating and guarantees that the Company will pay interest on the money deposited with them and return the principal amount you deposit with them.
If a Company has a high rating, it is easier for it to borrow money from you, as well as other people and it will offer a lesser rate of interest than say a lower rated corporate fixed deposit.
FAA rating are also highly safe, but not as safe as FAAA rated corporate fixed deposits and offer you a higher rate of interest to make up for the additional risk.
FA rated Company deposits are adequately safe. If the corporate fixed deposit has a rating of FB or FC, you need to be very careful, even if the Company pays you a high rate of interest on the deposits you make with them.
You can approach the Company where you want to invest in a corporate fixed deposit. Many a time Companies place advertisements of their corporate fixed deposits in leading newspapers.
The tenure of a corporate fixed deposit is generally 1-5 years.
You can withdraw prematurely from your corporate fixed deposit under certain conditions.
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