Top Factors to Consider When Choosing a Corporate FD for Your Business

Aisha , 27 September 2023  

Corporate fixed deposits are investment options provided by NBFCs and other financial institutions. Similar to a conventional bank FD, a corporate FD is a term deposit wherein you can park your funds for a suitable tenor to earn income safely.

Fixed deposits, being one of the safest options for wealth generation, benefit individuals and businesses alike. So, investing in a corporate fixed deposit is an excellent financial strategy because it offers slightly higher returns than traditional FDs.

That said, choosing the right financial institution is essential to help you generate handsome returns on your invested amount. Continue reading for a brief overview of corporate FDs and tips for choosing the best option.

Top Factors to Consider When Choosing a Corporate FD for Your Business

Unique Features of Corporate Fixed Deposits

Corporate fixed deposits offer higher interest rates, but this must not be your only criterion to check when selecting an FD plan. Make sure the issuer is reliable and has a stable credit rating. You must invest in a corporate FD only after assessing the issuer's creditworthiness.

Here are some essential characteristics of corporate FDs that make them different from conventional deposits.

  • It is easy to liquidate a corporate FD based on the issuer's terms when there is a financial emergency and your business requires funds
  • Corporate FDs come with credit ratings given by top credit rating agencies, such as CRISIL, ICRA, and CARE
  • Premature withdrawal facility is available but is subject to certain conditions set by the issuer
  • Corporate FDs offer higher FD rates as compared to term deposits offered by banks

Say you want to deposit ₹1 Crore in an FD for a tenor of 5 years at an interest rate of 8.18% p.a.  For this 1 Crore fixed deposit, the interest per month will be approximately ₹68,250.


Such a monthly payout can help you meet daily operational expenses in your business or recurring needs, such as those related to rent or inventory. So, choosing the right tenor and FD rate are key factors in helping you earn significant returns from the invested amount.

Factors Affecting Corporate FD Rates

FD rates offered by corporate deposits are comparatively higher than traditional deposits. Various factors such as the deposit tenor, credit rating of the NBFC, and existing market conditions play crucial roles in determining these interest rates.

As mentioned, credit rating decides the financial stability and debt repayment ability of a corporate entity. If a company has a high credit rating, such as AAA, it is considered less risky as an investment avenue.

So, investing in a corporate FD with a good credit rating offers secured returns as the risk of losing your funds is minimal. Likewise, the tenor of your fixed deposit governs its interest rate.

Usually, the higher the tenor, the higher the FD rate. For instance, when you invest in a long-term ₹1 Crore fixed deposit, the interest per month you receive will be higher when compared to a short-term FD. So, the more you stay invested, the better your returns.

In the same way, by choosing to receive your interest payout at maturity, you will be able to secure a higher FD rate and increase your earnings. In addition, be aware of certain special tenors that issuers offer, which give you higher FD rates. Investing for this duration can help maximise your returns from your corporate FD.

The prevailing market conditions also impact the FD rates. If the economic climate leads to inflation and higher repo rates, corporate entities may offer higher interest rates to attract more depositors.

Conversely, if the repo rates decrease, NBFCs and other companies may eventually reduce their FD rates. Taking note of these factors can help you lock in your investment with a suitable FD offering sizeable returns.

Tips for Choosing the Ideal Corporate FD for Your Business

Before choosing a specific corporate FD for your business, consider the following pointers.

Check the FD Interest Rate

Evaluating the interest rate is crucial as it determines your FD earnings. Opting for a longer tenor can help you enjoy the advantage of higher FD rates. In addition, choosing a special tenor that offers a more competitive rate can also maximise the earnings for your enterprise.

Assess the Credit Rating of the FD Issuer

It is essential to check the credit rating of the company before you invest in a corporate FD. Opt for companies with AAA ratings, as they are the highest ratings issued by most credit-rating agencies. This assures you of the issuer's reliability and credibility, so you can rely on the fact that your funds are parked in safe hands.

Remember that an entity with a lower credit rating may offer more attractive interest rates. While they can help you earn higher returns, the risk factor is also high. Hence, relying only on the FD rate and ignoring the credit rating of an entity is not a wise option.

Evaluate the Company's Reputation

Corporate entities with good reputations are stable and have lower chances of defaulting. This way, the reliability factor is higher, and there are no risks of fund mismanagement. So, opt for a corporate FD offered by a company with sound business practices and a solid financial track record.

Diversify Your Financial Portfolio

The diversification strategy is a smart move to minimise your risk exposure. Rather than parking all your funds in a single corporate FD, you can invest the amount in multiple FDs offered by different entities. This helps minimise the risk and safeguards your corpus.

Furthermore, you get to enjoy various FD rates, helping you generate handsome returns on the principal amount.


Benefits of Investing in Corporate FDs

Here are some advantages of investing in a corporate fixed deposit:

  • Provides secure returns on the invested amount
  • Offers higher interest rates, helping businesses earn sizeable returns
  • Offers tax benefits on the FD interest, enabling businesses to minimise their tax liability and increase net returns
  • Helps diversify the investment portfolio and mitigate risk

Investing in corporate FDs is an ideal long-term investment option for your business. As these FDs offer higher interest rates coupled with guaranteed returns, you can accumulate substantial earnings for your business. For instance, if you invest in a ₹1 Crore fixed deposit, the interest per month will be significantly higher when you choose a corporate fixed deposit.

Follow the aforementioned tips and compare various fixed deposit schemes before parking your funds. This will also help you zero in on the best deal, enabling you to generate sufficient funds for your business.

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