Last month RBI had cut its Repo rates which lead most banks to reduce their interest rates on fixed deposits. An alternative to lock in higher interest rate is to invest in fixed deposits offered by companies.
But before you get excited at getting higher interest rates here are some points to keep in mind:
You can evaluate Corporate FDs based on following 4 points:
Credit Rating: Companies are rated by rating agencies like CRISIL, CARE, FITCH which tells us how credit worthy is the company. “AAA” is the best ratings possible which indicate excellent credit worthiness and almost no concerns regarding timely interest and principal repayment. Ideally retail investors should not invest in low rated companies (i.e. Invest only in AA and AAA rated companies).
Liquidity Needs: The deposits you make in a company have certain terms and conditions. So it’s not always easy to withdraw prematurely as in case of Bank FDs. Most companies have a minimum lock-in for 3 months from the date of deposit.
Penalty Clause: Premature withdrawal may not only yield you lower interests but companies can also subtract the prorated commission they paid to their agents.
Promoters and Management of the company: Government owned companies are much safer to invest as it won’t let the company default in most of the case (at least to retail investors). So investors can also invest in government companies with ‘A’ rating. Also never invest in companies who themselves or companies belonging to that group have ever defaulted on interest/principal payments.
While investing in Company FDs you will need to choose two things:
Tenure of Deposits: The FDs are offered for 1 to 10 years duration. Keep in mind that longer term duration are more risky as the company credit rating can change with time.
Interest Payments: Companies have option to pay interest monthly, quarterly, half-yearly, annually and at the time of maturity. You need to select when you want interest to be paid depending on your financial goals.
The table below has the details of interest rates offered by different companies. The best interest rates have been shaded in Green.
The table also has the fixed deposit interest rates offered by two biggest banks – SBI and ICICI, so that you can benchmark the returns.
In case you decide to invest in the above companies you have 3 options:
You would need to submit documents for identity and address verification for KYC. PAN card is mandatory and also serves as proof for identity and signature. You also need passport size photograph.
The tax treatment for company FDs is same as Bank Fixed Deposits. The interest income is added to the income of investor and taxed at marginal income tax rate.
Company deducts TDS (Tax Deduction at Source) in case the annual interest paid is more than Rs 5,000. You can attach Form 15G/15H during the application stage, in case you want the company not to deduct TDS.
As you can see in the table above that companies like Bajaj Finance, Dewan Housing Finance (DHFL), Shriram City Union Finance and Shriram Transport Finance FDs offer interest rates that are higher by 1% from bank deposits for different tenures.
You might want to evaluate these companies for your fixed deposits. But keep in mind that pre mature withdrawal may not be as easy as banks FDs.
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View Comments
Amit Ji,
Any of these companies/corporations restrict the FD investment only to Indian citizens ? I mean, can a non-indian ( with a PAN card of course) invest in corp FDs ?
TIA
Hello Amit
I checked PNB housing finance is not giving interest @ 9.25% as shown above!!
Hi Amit,
Thank you for providing the list of companies offering good rates and also rating of each company.
I am a NRI, currently a US citizen. I do not have OCI.
Is it possible for me to invest in these company schemes is USD with return in USD as well?
HI Amit
Please give your email id I need to invest some funds to company FD and need more info on that and all safe no issue in future ?Please advise
Thanks
SK
Please find list of companies where investing in FDs would be safe.
Hi Amit., Its me venkatesh @ 27years old and i am working in Pvt firm., so i have some funds in my ac.,i am planning to invest in fd could u please refer me some bank or corporate company for best returns.,
We have listed Best Bank FD rates and Company FD rates. Choose as per your need and risk!
I am a retired person of age 62, have some FDs in Bank, do i require to pay tax,
Yes in case your income from interest exceeds Rs 3 lakhs for the year, you would need to pay tax. Additionally you can invest up to Rs 1.5 lakhs u/s 80C to save more taxes.