Fixed deposits have always been a preferred financial instrument for investors looking to invest a lump sum. Several depositors depend on the interest income being offered by fixed deposits. Fixed deposits also preserve the original capital of the invested amount. However, over the last few years, interest rates offered by bank fixed deposit (FD) have been falling. Hence depositors are looking at alternatives.
Fixed deposits offered by non-banking financial institutions are becoming popular. This is because they are offering some of the highest fixed deposit interest rates. Depositors who are looking to invest in company fixed deposits must consider the following points before taking a decision:
Before shortlisting a financial institution to deposit funds in, depositors must do homework and find out about the quality of its management and its perception among various stakeholders.
Depositors could also discuss this with others in their network who have fixed deposits. Depositors can also access fd calculators online while comparing offerings by different institutions.
Credit Rating assigned
Company deposits are ranked by credit rating agencies. Credit ratings indicate the risk associated with a financial instrument. The higher the rating, the safer is the financial instrument. Crisil, which is one of the leading credit rating agencies in India, offers the following rating bands
FAAA (Highest safety)
FAA (High safety)
FA (Adequate safety)
FB (Inadequate safety)
FC (High risk)
NM (Not Meaningful)
It is recommended that depositors selected fixed deposits which are rated FAA and above. Depositors must also keep an eye on the ratings.
One of the most important offerings of a company fixed deposit is the comparatively higher rate of interest. Depositors can receive interest rates as high as 8.7% with a company fixed deposit. Senior citizen depositors can expect interest rates higher than what is available to depositors under the age of 60. Depositors can use fd calculators available online to calculate their interest income.
Financial goals and FD tenure
Depositors need to select FD tenures according to their financial goals. They must try to time the redemption of their deposits at a time when funds are required. For example: if a depositor is planning to require Rs 2 lakhs in a company fixed deposit and requires funds after 14 months, it is suitable for such a depositor to invest in a company fixed deposit with a tenure of 12 months.
Add on facilities
Depositors can also evaluate whether they are getting additional benefits. For example, they should be able to avail of 75% of their deposited amount as loan. Depositors could also check whether the financial institution is offering premature withdrawal facility. This is because there could be emergencies and the depositor might have to withdraw the deposited amount as soon as possible.
Frequency of payouts
Depositors look forward to receiving the interest income from their deposits. If they are primarily dependent on the interest income, they must consider a company fixed deposit which credits the interest income monthly. For instance, senior citizens end up depending significantly on the interest income from their fixed deposits.
Therefore, it isn’t enough to shortlist a financial institution for investing in a fixed deposit just based on whether it offers the highest fixed deposit interest rates. Depositors need to consider all the factors mentioned above.