As a domino effect of the consecutive rate hikes by the Reserve Bank of India(RBI), major banks, including HDFC Bank, ICICI Bank, IndusInd, and IDBI Bank, other smaller banks are also offering attractive rates to the general public and senior citizens.
Rising repo rates often bring up a question.
Is it a good time to invest in FDs?
One of the most difficult parts of determining the start and end of the cycle comes amid interest rate hikes and FD rate hikes. Market and interest rate cycles can only be timed with consistent hindsight. Few investors might hold back on investing in anticipation of further rate hikes. They may or may not be right, as the situation can be fluid and one can never know. One can also start investing in parts in fixed deposits at the current interest rates. This way, they may not reach the top but can get close to it.
Smaller banks are offering as high as 7.5% on a 3-year FD for senior citizens. A portion of the senior citizens’ savings should be invested in FDs, which are liquid and can provide a high regular income. Even though bank FD interest is taxable, for senior citizens, it is negligible, so the tax liability stays at a minimum.
Since USDINR continues to depreciate and inflation stays high, the RBI is more likely to front-load the rate hikes to prevent the interest rate differential from widening.
With debt instruments having higher yields now, one can not ignore other fixed-income investment instruments if you are looking for even higher returns from fixed-income instruments.
One debt instrument that offers higher yields than bank FDs is the corporate fixed deposit.
How do corporate deposits or corporate FDs work?
Corporate Fixed Deposits, or corporate FDs, are corporate term deposits held over a fixed period of time with a fixed interest rate, but this does not imply that all corporates can offer fixed deposits. Corporate fixed deposits are governed under section 58A of the Companies Act, 1956. The RBI has laid out guidelines allowing companies to launch fixed deposits. Raising money through FDs is convenient and easy for corporates, but it is an unsecured loan.
Why Should you invest in Corporate FD?
Returns offered by FDs are guaranteed and not linked to the markets. This is why they are popular amongst investors looking for stability and a regular and fixed income. Similar to FDs, corporate FDs provide a regular income with greater returns. If a company offers a certain interest rate, it is usually offered irrespective of the prevalent market conditions.
- Interest Rate
Corporate fixed deposits offer higher interest rates as compared to bank FDs. If you’re looking to invest in a debt instrument but at the same time want higher interest rates for greater returns, corporate FDs should be on your list. Similar to bank FDs, corporate FDs offer higher interest rates to senior citizens, making them attractive to this age group of investors who have a combination of stability and an attractive periodic payout.
- Short Term Investment Option periodic
Bank FDs have a varied tenure for fixed deposits, which ranges from a few months to years. One major advantage of corporate FDs is that they have a short investment period that cannot exceed five years. This is suitable for investors when they want high returns in a short period of time.
Many corporates offer FDs, but which ones are right for you is one of the most common problems when investing in fixed deposits. To solve this, investors can refer to ratings given by CARE (Credit Analysis and Research Limited), CRISIL (Credit Rating Information Services of India Limited) or ICRA (Investment Information and Credit Rating Agency of India Limited) and make a call.
If you’re still confused about the ratings, you can consult with experts from investment management firms such as Rurash or consult a financial advisor. Company ratings are AAA, AA, BBB, and so on. AAA is the highest rating, which signifies the least risky investment, and you can potentially find a money hive through your investment.
Corporate FDs have a greater potential for higher returns for those who wish for high returns along with guaranteed and regular income. The only thing to keep in mind is that you invest in corporate FDs which are in line with your investment goals, and risk appetite. To understand it better, you can easily take the help of a financial advisor, or consult an investment management firm to guide you through the process and scout your perfect match.
RURASH is one of India’s leading investment management firms, providing financial solutions to augment the client’s wealth and facilitating in building of a purposeful legacy.