Since last year, the rate of interest paid by leading banks on fixed deposits declined by about two percent. This is reducing the attractiveness of investors towards FD. In such a situation, the experts recommend investing in corporate fixed deposits.
What is Corporate FD:
Corporate deposits are issued by the company instead of a bank. Their maturity period is usually from six months to three years. The interest rate here is higher than the bank FD. The risk in corporate FD is higher than the bank FD, as it is linked to companies' business. However, the risk in high-rated corporate FD remains low increases the security of the investor's capital.
In Corporate FD, more than a 2% interest rate can be availed as compared to bank FD. However, corporate balance sheets are also under strain due to the coronavirus epidemic-induced financial strain. Therefore, experts say that the person should remain selective while investing in corporate FD. Experts recommend investing in corporate FDs with AAA rating only to ensure the security of capital. At present, AAA-rated corporate FD has been offering an interest rate between 6 to 8% based on the investment period.
Mortgage lender HDFC is currently offering a 6.20% interest rate on 15-month FD. Bajaj Finance is offering a 6.9 percent interest rate on FDs for a period of 12 to 23 months. Both of them come with a corporate FD AAA rating. This means that it has the highest security of your capital.
Corporate FD offers higher interest rates than customers, but the rules for premature withdrawals are very stringent. Pre-maturity withdrawals are not allowed in the first three months of deposit in corporate FD. After the first three months, different companies charge different fees on pre-maturity withdrawals. For example, HDFC Limited gives only three percent interest on pre-maturity withdrawals after three months and six months. After six months, the pre-maturity withdrawal pays a lower interest rate of one percent from the interest rate applicable for the HDFC period.
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