CFD Better Then Bank FD (Fixed Deposit)
FDs are normally a fixed deposit and a saving instrument, which gives a higher rate of interest than a regular savings account.
It is a term deposit in which we invest in a lump sum amount and we get interest on it till maturity.
FD’s are normally offered by the bank. But NBFC’s (Non-Banking Financial Companies) also offer the FD’s and it is known as Corporate Fixed Deposits. They are the same as bank FDs.
Corporate Fixed Deposit (CFD) is a term deposit that is held over a fixed period at fixed rates of interest. The maturities of various corporate fixed deposits can range from a few months to a few years.
Their functioning is somewhat similar to Bank FDs but they are offered a higher rate of interest. The risk involved with corporate FDs is significantly higher. If the company hits a recession or goes bankrupt then the returns cannot be provided at the maturity of corporate FDs.
The medium of the deposit is a certificate of deposit. The corporate FDs are not insured, that means, in case of default you will not get Rs 5 lakh as in the case of bank fixed deposits. It gives high returns as compared to Bank FD’s as they involve high risks.
Key benefits of Corporate FD’s :
Higher returns – Enjoy greater returns from Corporate FDs as compared to the bank FDs.
Flexibility – Choose Corporate FDs as per your preference from a variety of tenures such as monthly, quarterly, half-yearly, or yearly.
Liquidity – Enjoy better liquidity with Corporate FDs with a lower lock-in period than Bank FDs
Premature Withdrawals – Opting for premature withdrawal in FD means depositors can withdraw their amount and close the account before the term ends.
Safety – Company deposits are carefully inspected by credit rating agencies. These agencies check whether such FDs are safe and stable.
Tips for choosing a Corporate FD:
Credit Rating: Opt for higher-rated corporate FDs based on its credit rating which indicates the underlying risk of the company.
Company Background: Assess a company’s business viability by referring to its Financial Statements, Management Discussion, and Analysis (MD & A).
Repayment History: Companies’ repayment history helps to determine the company’s credit score, credibility, and stability.
Risk profile: Make sure that the company you pick is financially healthy and helps you rule out any default risk during the fixed deposit period.
Terms of FD: A cumulative scheme could be better than a regular income option as the interest earned gets invested in other avenues. At the end of the day, you’ll have a lump-sum amount in your hands. But not if you’re looking for a regular income from the FD.
Here are the top NBFC’s recommended by our expert.
1. HDFC Ltd (Housing Development Finance Corporation Ltd)
2. PNB Housing (Punjab National Bank Housing Finance)
3. Mahindra Finance (Mahindra & Mahindra Financial Services Ltd)