How to Choose the Best Corporate FD Rate for Your Business
Fixed Deposits offer a guaranteed return on investment and rank among the safest investment options in the Indian market for individuals and businesses alike. Corporate Fixed Deposits appeal to businesses owing to the higher interest rates offered, when compared to conventional bank Fixed Deposits.
Let’s learn how to choose the best Corporate FD rates for your business and why Corporate FDs should be considered part of your long-term investment portfolio.
What are Corporate FD Rates and What Determines Them?
Corporate FD rates refer to the interest rate that financial institutions offer on their Fixed Deposit products. These rates are higher than traditional FD rates and are influenced by the credit rating of the company, duration of the deposit, prevailing market conditions etc.
Credit Rating of the Company
Credit Rating agencies assess and rate companies based on their financial stability and debt repayment. Companies with a high Credit Rating are considered less risky and offer lower interest rates than companies that don’t have a decent credit rating.
Duration of the Deposit
Typically, longer-term Corporate FDs offer higher interest rates compared to short-term ones. This is because longer-term deposits carry more risk for the company as it needs to hold on to the funds for a longer period.
Prevailing Market Conditions
Corporate FD rates are influenced by market conditions. In a low-interest rate environment, companies may offer higher interest rates to attract more investors. In a high-interest-rate environment with more competition for funds, companies may offer lower interest rates.
Choosing the Best Corporate FD Rate for Your Business
Here are some tips to help you choose the best Corporate FD rate for your business:
Evaluate the Credit Rating of the Company You’re Going to Invest in
Before investing in a Corporate FD, evaluate the credit rating of the company you’re investing in. Invest in companies with AAA ratings: the highest possible rating that can be assigned by any of the major credit-rating agencies.
Interest Rate On Offer
Once you have evaluated the credit rating of the company, evaluate the interest rate offered on the deposit. Typically, longer-term deposits offer higher interest rates than short-term deposits.
Liquidity of the Deposit
Corporate FDs are not as liquid as traditional bank FDs and may come with some penalties for premature withdrawal. If you anticipate needing the funds before maturity, it may be better to invest in a more liquid investment option.
Reputation of the Company
Companies with good corporate reputation are largely stable and less likely to default on debt. It is vital that you evaluate the reputation of the company, consult experts and invest in places with good financial track record and sound business practices.
Do Give Diversification a Thought
It is a great idea to diversify your portfolio and minimise risk. Instead of investing all your funds into a single Corporate FD, invest in a number of Corporate FDs issued by different companies. This will distribute risk and provide sufficient safeguards against default.
Why Corporate FDs are one of the Best Long-Term Investments?
Corporate FDs offer a spectrum of advantages for businesses looking at long-term investment options:
Guaranteed Returns on Investment
Corporate FDs offer a guaranteed return on the principal amount, which can appeal to businesses looking for safe investments. The interest rate offered on the deposit is fixed at the time of investment and does not change over its duration.
Higher Interest Rates
Corporate FDs offer higher interest rates to investors when compared to traditional bank FDs, making them an attractive investment option for businesses looking to gain higher returns.
The interest earned on the deposit is subject to taxation, but businesses can claim a deduction for the interest paid on the FD, lowering the tax liability and increasing the net return on investment.
Putting money in multiple Corporate FDs issued by different companies can diversify your investment portfolio for long-term investments as well as distribute risk.
Corporate FDs can make for terrific long-term investment options for businesses, thanks to the greater interest rates and guaranteed returns they offer. Use an online calculator to see the status of your funds once the FD matures. If done smartly, Corporate FDs can be game-changers and you can reap the benefits of their inflation-beating returns, added tax benefits and reduced risk through diversification.
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