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Fixed Deposits are common and favorite deposits for investors who want returns regularly. Most people think of banks when they hear the term Fixed Deposits, but there is also a better option in FDs apart from banks. These are known as Corporate FDs, and they offer higher interest rates compared to the banks. However, these are unsecured and are not backed by any collateral.
The investor invests a lump sum amount of money in a fixed deposit and then receives interest periodically till the Fixed Deposit is matured. Here, maturity is a specific period for which an investor invests money. Bank FDs are the most popular, but much like banks, other institutions can also collect money in Fixed Deposits. A few such as corporates, NBFCs, and financial institutions raise money for their present or forthcoming operations. Before investing in Corporate Fixed Deposits, it is important to understand how corporate FDs work.
Corporates collect money from people in the name of Fixed Deposits for a particular timeframe. This money is then utilized for that particular time provided a fixed interest rate is given by the company to each individual whose money is being utilized. A corporate can find it easy to raise capital for financial and productional operations by using Fixed Deposits as they are unsecured loans. Besides, they are comparatively for a longer period.
So, can any corporate raise money through fixed deposits?
No, certain guidelines direct which companies are eligible for running such schemes to raise capital. These guidelines are issued by Reserve Bank India (RBI) and under section 58A of The Companies Act (1956).
The corporate's money is utilized, and then periodically, the interest rate is issued to the individuals until the maturity date. Once the maturity date, the money is returned, and individuals can reinvest it as a Fixed Deposit under the same corporate or the other corporates and financial institutions.
Fixed Deposits in banks guarantee returns as they are not linked and influenced by the market. However, it is the same with the corporate FDs as they are also not influenced by market or interest rate fluctuations. If a company offers a certain interest rate, it is the same and not affected by the market or interest rates that vary.
Investing in Corporate Fixed Deposits? Know These Before InvestingThere is a higher return with the Corporate Fixed deposits compared to bank FDs, but there are a few notes that the investors should make before investing in Corporate FDs,
It is safe to invest in corporate fixed deposits as they are less risky and are not influenced by market changes.
A company fixed deposit is the term deposit where the money is held for a tenure against interest-based returns.
Corporates are ranked or rated in terms of AAA, AA, BB, and these ratings are made based on the companies' previous financial records. Using these ratings, one can determine the best company for fixed deposits. AAA is the highest rating for a corporate.
If you want to invest in the company's fixed deposits, one way to buy is from the brokers. These are verified and take certain commissions while they help in buying the company's fixed deposit.
The tenure period of corporate fixed deposits ranges from months to years but cannot cross more than five years.
Corporate FDs hold a great chance for those who wish for higher returns, and besides, it also diversifies the investment. They offer higher interest rates than bank FDs. They can be compared on an operational and rating basis, making it easier to choose a potential company for corporate FD.
INVEST NOW IN CORPORATE FDs.