October 11, 2023
Fixed Deposits (FDs) have long been a favoured investment choice among NBFCs in India to raise capital, and investors to pool their savings. And for good reason; these financial instruments offer a stable avenue for parking surplus funds while earning a fixed interest income.
However, not all corporate FDs are created equal, and selecting the right one requires careful consideration. Here are some essential tips to help you choose the best corporate FDs in India.
1. Check Credit Ratings:
Before entrusting your funds to any corporate FD, it’s crucial to assess the creditworthiness of the issuing company. Credit rating agencies like CRISIL and ICRA evaluate the financial stability and credibility of corporations. Opt for corporate FDs with high credit ratings, as they indicate a lower risk of default.
2. Interest Rates Matter:
Interest rates on corporate FDs can vary significantly between issuers. Compare the interest rates offered by different companies and choose the one that provides a competitive rate without compromising safety. Higher rates can boost your returns, but be cautious if a rate seems exceptionally high, as it may indicate higher risk.
3. Consider Tenure Options:
Corporate FDs come with various tenure options, typically ranging from a few months to several years. Select a tenure that aligns with your goal based financial planning. Short-term FDs offer liquidity, while longer-term options may provide higher interest rates.
4. Understand Tax Implications:
Interest earned from corporate FDs is subject to taxation. Ensure you are aware of the tax liability and whether Tax Deducted at Source (TDS) applies to your investment. It’s advisable to consult a tax expert, or a wealth manager to optimize your returns while staying compliant with tax regulations.
5. Assess Payout Options:
Corporate FDs offer different payout options, such as monthly, quarterly, or annual interest payouts, as well as cumulative options where the interest is reinvested. Choose the payout frequency that best suits your cash flow requirements.
6. Review the Lock-In Period:
Some corporate FDs come with a lock-in period during which premature withdrawals are not allowed. Be aware of the lock-in period and choose a tenure that aligns with your investment horizon and liquidity needs. In case you do need to withdraw your funds before the maturity date, take note of the associated penalty charges. Opt for FDs with reasonable penalty rates to minimise potential losses.
If you’re unsure about which corporate FDs to choose or need guidance on your investment strategy, look no further, Tailwind, the best wealth management platform is here to help you out. Our wealth management experts can help you make informed decisions in a way that optimises your corporate FD portfolio.
