Corporate Fixed Deposits in India

Corporate Fixed Deposits in India

Corporate Fixed Deposits in India

A Company Fixed Deposit is a deposit placed by investors with companies for a fixed term carrying a fixed rate of interest. CFDs are like unsecured loans borrowed by a company from the investors. These are similar to bank fixed deposits with a few differences. In this, the fixed deposits are held with companies. CFDs are offered by manufacturing companies and NBFCs for different tenures and with a different frequency of interest payments.

In simple words, the deposits placed by investors with financial institutions, Housing Finance companies and Non-Banking Finance Companies (NBFCs) for a fixed term carrying a prescribed rate of interest is called Corporate / Company Fixed Deposit.



Corporate Fixed Deposits Rates 2020

Company Name Rating Interest(Min) Interest(Max) Tenor
Sundaram Home Finance Limited 'FAAA' By CRISIL 6.75% p.a. 7.00% p.a. 12 months to 60 months
Shriram City Union Finance Limited 'MAA+' By ICRA 7.72% p.a. 8.65% p.a. 12 months to 60 months
HDFC Limited 'FAAA' By CRISIL, 'MAAA' By ICRA 7.10% p.a. 7.35% p.a. 12 months to 84 months
PNB Housing Finance Ltd CRISIL FAA+ / Negative, CARE AA+ / Negative 7.20% p.a. 7.50% p.a. 12 months to 120 months
LIC Housing Finance Ltd 'FAAA' By CRISIL 6.60% p.a. 7.10% p.a. 12 months to 60 months
ICICI Home Finance Company Ltd FAAA by CRISIL / MAAA by ICRA / AAA by CARE 7.40% p.a. 7.80% p.a. 1 - 10 years
Mahindra and Mahindra Financial Services Ltd 'FAAA' By CRISIL 7.30% p.a. 8.10% p.a. 12 months to 60 months
Bajaj Finance Ltd 'FAAA' by CRISIL / 'MAAA' by ICRA 7.60% p.a. 8.10% p.a. 12 months to 60 months
Shriram Transport Finance Company Ltd FAAA By CRISIL / MAA+ By ICRA 7.80% p.a. (Non cumulative) 8.75% p.a. (Non cumulative) 12 months to 60 months

Types of Company FDs

CFDs are of 2 type-:

  • Cumulative: In the cumulative CFDs, interests are accumulated along with the principal amount and the entire amount is paid at the end of the term. No payment is made within the investment term.
  • Non -Cumulative: In Non-Cumulative CFDs, interest earned is paid on a regular basis. It can be monthly, quarterly, half-yearly or annually depending on the investors choice.

Company Fixed Deposits- Key Features

  1. CFDs have fixed-term and offer a fixed rate of returns.
  2. Investors can invest in different tenures ranging from months to years.
  3. Interest payments are paid monthly, quarterly, half-yearly and yearly.
  4. Premature withdrawals are allowed.
  5. Companies offering CFDs are rated by rating agencies like CRISIL & ICRA.
  6. CFDs are governed by Section 58-A of the Companies Act 1956.

Corporate Fixed Deposit Advantages

CFDs offer many benefits to an investor including-

  • Offer Higher Returns- Company Fixed Deposits offer higher interest rates when compared to banks.
  • Tax Benefits- Interest earned up to ₹5000 in a year is exempted from TDS.
  • Steady Income- CFDs are a good source to earn regular income monthly, quarterly, half-yearly or yearly.
  • Loan against deposit- Investors can avail a loan up to 75% of the deposit amount after 3 months from the date of deposit.
  • Diversification- CFDs are useful in investment diversification, especially for low-risk investors who have limited investment options.

Company Fixed Deposit Disadvantages

An investor must consider the following factors before investing in a CFD-

  • Default Risks- CFDs are not entirely risk-free. Companies offering CFDs may default on interest and principal repayment due to bad financial position. CFDs are governed by the Companies Act, according to which, if a company is winding up, the first preference for repayments is given to shareholders rather than the fixed deposit holders.
  • Penalty for Preclosure- Most companies will levy a penalty fee for preclosure of the accounts.
  • Taxable- Interest earned on CFDs above ₹5000 are taxed as per the tax bracket of the investors. TDS is deducted at 10% for investors. Investors falling in zero/nil tax bracket, need to submit Form 15H every financial year to avoid TDS deduction.

Company FDs vs Bank FDs

 

Company Fixed Deposits

Bank Fixed Deposits

Issued By

Manufacturing Companies & NBFCs

Banks

Regulated Under

Companies Act, 1956

Banking Regulation Act, 1949

Investments Insured Up To

₹20,000

₹1 lakh

Interest Offered

Higher than banks.

Lower than CFDs.

Minimum Investment Duration

7 days

6 months

Taxation on Company Fixed Deposits

The interest earned on CFDs is taxable falls in the 'income from other sources' category of an investor. TDS is deducted for interest amount exceeding above ₹5,000 a year. Investors falling in zero/nil tax bracket, need to submit Form 15H every financial year to avoid TDS deduction.

Who Should Invest in CFDs?

  • CFDs are excellent investment instruments for investors who are looking for stable returns without too many risks.
  • Senior Citizens can also benefit from CFDs as it can help them earn a regular income.

Key Takeaways

  1. CFDs are fixed-term deposits offering a fixed rate of returns. They are of two types- Cumulative and Non-Cumulative.
  2. CFDs are issued by manufacturing companies and NBFC. Each CFD is rated by the rating agencies.
  3. CFDs offer higher returns than bank deposits. However, these are also riskier than bank deposits.
  4. TDS is deducted for interest earned above ₹5,000 a year on CFDs.