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Should You Invest in Corporate Fixed Deposits? Are they safe?

Corporate fixed deposits offer higher interest rates when compared to bank fixed deposits. This is the main reason why more and more investors get attracted to the concept. Financial arrangements do possess their own sets of pros and cons. Corporate fixed deposits are no different from the rest.

Generally, for corporate fixed deposits, it is the company’s reputation and credit rating that helps investors make up their minds to choose whether they want to proceed or not. As per statistical data, it is proven that the market fetches excellent rewards to those people who are ready to take the risk. People can apply for fixed deposits online once they are done with detailed research and earn huge profits. The article discusses the Corporate Fixed Deposits in detail and whether one shall invest in them or not?

What Are Corporate Fixed Deposits?

The deposits which are issued by the public and private companies are called corporate fixed deposits. These deposits work in a very similar way to the FD arrangements provided by the banks. The company FDs has a maturity period after which the investor is eligible to earn the final amount. 

The fixed deposit interest rate in corporate FDs are higher than banks’ FDs. You can opt from either of the two options for interest – the cumulative option, where the interest is added to the deposit. And the non-cumulative option, where the interest will be paid to you periodically.

Many agents in the market sell corporate FDs to their clients. You can easily find one such broker and start investing, but do check out the background of the broker before handing over your hard-earned money to them. Also, conduct proper research about the company to minimise the risk of fraudulent activities.

Here are a few points that you need to consider before investing in corporate fixed deposits.

The Entire Arrangement Is For Flexible Investors

Corporate FDs possess way higher risk than bank FDs and there are also no tools and methods to prevent the depositors from losing their money. In the bank FDs, you get an insurance cover of Rs. 1 lakh. It is also controlled by the Reserve Bank of India (RBI), which means even if the bank undergoes a sudden monetary crisis, then the Reserve Bank of India will act as a guarantor of the deposited amount. RBI will merge it with another bank so that people won’t lose their money.

Corporate FDs do not hold any such insurance from the company or the government’s side. The deposited amount is vulnerable to sudden market changes and arbitrary decisions from the company’s side. In case you are not a flexible investor, it is advisable to reconsider your decision before investing in corporate fixed deposits.

Research Before Investing

It is very important to carry out detailed research on the company’s financial status and recent performance in the market before investing in their fixed deposits. Make time to visit the company’s official website and read the products and service they claim to offer, average annual profit and active tie-ups they possess.

Not just before investing, it is also important to check the company’s financial status after the investment. Review their business with their business partners, check their quarterly results, and if anything seems unusual, pull off your money. The research will also help you to find the best fixed deposit interest rate in the market.

How Safe Are The Corporate Fixed Deposits?

Unlike banks, the finances of the companies are not directly regulated by the RBI. They are undertaken by the Companies Act, 2013. Therefore, if you have deposited in the corporate FD and the company is delaying your payment, there are not many options available to you to do anything about it.

When compared to equity shareholders, corporate fixed deposits are termed as secured borrowings. That means if the company shuts down or stops functioning, then corporate fixed deposit holders get more preference over the equity shareholders when it comes to repayment facilities.

While returns from corporate fixed deposits are mostly volatile as they are directly related to the company’s market performance, but are also one of the high return schemes available in the market. One can avail of the particular scheme by consulting brokers offline or can also apply fixed deposit online as per convenience. Detailed research about the company, its current market position, active tie-ups, products, and services offered will help you make wise decisions besides minimizing the risk of losing your hard-earned money. 

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