Fixed deposits (FDs) are one of the most popular investment options in India. They offer guaranteed returns, safety of capital and easy liquidity. However, not all FDs are the same. There are different types of FDs offered by different entities, such as banks, non-banking finance companies, post offices, and corporates.
Corporate fixed deposits or company fixed deposits are term deposits kept for a set amount of time at a set interest rate. Financial institutions such as non-banking financial companies (NBFCs), provide corporate fixed deposits. Many corporate FDs have maturities that can range from a few months to a few years. Like banks, RBI permits selective NBFCs to accept deposits for a fixed interest rate and tenure. Such deposits are known in the common parlance as company or corporate fixed deposits.
The main difference between corporate FDs and bank FDs is the interest rate. Corporate FDs usually offer higher interest rates than bank FDs, as they have to compete with banks to attract deposits. The interest rate on corporate FDs depends on various factors, such as the credit rating of the issuer, the tenure of the deposit, the amount of the deposit, and the prevailing market conditions.
Another difference is the safety of the deposit. Bank FDs are insured by DICGC up to Rs. 5 lakh per depositor per bank. This means that if a bank fails, you can get back your money up to Rs. 5 lakh from DICGC. However, corporate FDs are not insured by any agency and hence carry a higher risk of default by the issuer. Therefore, it is important to check the credit rating of the corporate FD before investing in it.
A third difference is the tax treatment of the interest income. Both bank FDs and corporate FDs are subject to tax
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