Graded Financial Services

For most of us Fixed Deposit would mean investing money in any of the bank FD.
However, similar opportunity does exist with many Companies, Financial Institutions and Non-Banking Finance Companies (NBFCs) as well. These entities also accept such deposits!
Corporate FDs normally offer higher returns that Bank FDs, but at the same time they are unsecured! Therefore, it’s not wise to go for Companies which offer interest much higher than that prevailing in the market or are unrated.
You have to look at the company’s pedigree and profile. You need to know why the company is accepting the deposits from the public. Right way to go about is to choose those Corporate FDs which have been rated high by the credit rating agencies such as CRISIL, ICRA, CARE, as that would denote trustworthiness.
Remember, if the credit rating of a corporate FD scheme is good then that particular scheme may offer lower interest rates when compared to a poorly rated FD scheme. So, higher the rating, lower the returns.

Features of the corporate fixed deposit:
• 1. Who can invest: The fixed deposits can be opened by individuals, trusts or companies. In the case of individuals, resident Indians and NRIs can open company fixed deposits
• 2. Term: Deposit tenure ranges from 12 months to 60 months.
• 3. Scheme: Interest rates offered could be cumulative and non-cumulative. Under Cumulative Deposit scheme, the interest is paid along with the principal amount on maturity date. Where as in case of non-cumulative option, the interest payment frequency could be monthly, quarterly, half-yearly or on annual basis.
• 4. Premature withdrawal: Premature encashment of deposit is also available in many of the FDs, however, often with penalty clause.
• 5. Special consideration: Some corporate FD schemes offer special interest rates for Senior Citizens, Shareholders, and Employees of that company.
• 5. Taxation: Tax benefits are not available on company fixed deposits. TDS is not applicable on interest earned up to Rs 5,000 pa. You have to club the interest earned on these deposits as ‘income from other sources’ and file your annual Income Tax Returns.
  Ideally, an amount to be invested should be spread across fixed deposits of companies engaged in different industries. This way, risk of default would be mitigated.