Company Fixed Deposits & Corporated FDRs

What is a Corporate Fixed Deposit?

The deposit placed by investors with different companies for a fixed time period & where the deposit carries a predefined rate of interest is called Company Fixed Deposit or Corporate Fixed Deposit. The Fixed Deposits made with the companies are documented in the form of paper receipts which is commonly known as Corporate FDRs (fixed deposit receipts). Financial institutions and Non-Banking Finance Companies (NBFCs) also accept such deposits. Fixed Deposits mobilised by the companies are governed by the Companies Act under Section 58A but these deposits are unsecured, i.e., if the company defaults, as an investor you cannot sell the receipt / document to recover your investment amount.

What is the difference between an NCD and an FD?

Companies issue Non Convertible Debentures (NCDs) & Fixed Deposit Receipts (FDRs) both. NCD is more of a tradable investment instrument which combines the features of shares as well as fixed deposits. Company FDRs are more like the fixed deposits with banks, the primary difference being that bank FDs are secured and hence much safer to invest. The key differences between FDRs & NCDs are :

i) Liquidity: NCDs are more liquid as they are tradable at exchange whereas FDs can't be sold in the market. However, bank FDs are also highly liquid unlike corporate FDs and can be encashed even before maturity , subject to penalty.

ii) Safety: While NCDs are secured debt, corporate FDs are altogether unsecured and bank FDs are secured upto Rs one lakh only.

iii) Taxation: FDs give you only interest income whereas in case of NCDs, in addition to interest income, there can be capital gains also. Income from NCDs is not exempted from TDS where as FDs interest income is subject to TDS.

iv) Interest rate risk: Unlike FDs where the rate of interest is pre-fixed and cannot change, NCDs have an element of interest rate risk due to changes in market interest rates some times.

What are the benefits of a Corporate FD?

Though Corporate FDRs carry some amount of risk but it doesn't mean that they are not a good investment option. If the company which is issuing collecting the deposit is high on the credit rating, there are several advantages of investing in a Corporate FDs.

The interest rate of company FDs is higher than normal Bank FDs.

Corporate FDs generally have relatively short-term of lock in.

There is a fixed and safe return on investment which gives an edge over equity.

TDS is not deducted if the interest income from one particular company is less than Rs. 5,000/-

You can invest in the FDs of multiple companies to ensure that one company FD does not exceed Rs. 5,000/-, thus you can avoid TDS.

Raghunandan Money brings all the Corporate FDRs to you on a single platform, hence you don’t need to waste your time looking for different companies. You leave it on us to pick the best ones for you and make investing in companies FDs simpler.

How can you invest in Corporate FDs?

Different companies come with the offer to invest in their Fixed Deposits (FDs) from time to time and all these FDs are available with Raghunandan Money. All you have to do is to register with us. We give you a detailed report on the FDs with our inputs as why you should invest in that particular FD. You can contact any of the offices of Raghunandan Money or else just let us know to facilitate the formalities at your door step. For investing in corporate FDs, you don’t require to have a demat account with us and what’s more there are no advisory or facilitation charges involved.