Sunday, November 13, 2011

Corporate Fixed Deposits: An Attractive Investment Option

The volatility in the Stock Markets have driven several people away from Equities into Fixed Deposits (Term Deposits). While Bank Fixed Deposits (Term Deposits) have been a favorite, Corporate Fixed Deposits are attracting more investors, who are attracted by the higher interest rates and wider options. Corporate Fixed Deposits  are exactly like fixed deposits offered by banks where you get a specified interest for a specified term. 

However, if you think Corporate Deposits are as your Bank Deposit, there is some bad news -
While Bank Deposits are insured up to Rs 1 Lakh (which you get if the bank goes bust), Corporate FDs do not have any such protection. But does this mean that you should not consider this attractive option? Not necessarily! If you do your homework properly and select strong companies & deploy your money across a few companies, you could get very high and attractive returns!

Here are a few key points that you need to remember while you select companies to start your Corporate FD.

1. Go for companies which have a strong Credit Rating. According to an RBI mandate this credit rating will be displayed prominently in the application. (eg. AAA rating by CRISIL)

2. Spread your investment across 2 -3 different companies

3. Check the background and financials of the company 

4. DO NOT be lured by extremely high interest rates! If a company offers an interest rate viz. 2% more than what top-rated-companies, then you need to be skeptical 

5. Do not invest a large chunk of your savings in Corporate FDs

6. Do not go for a tenure more than 3 years, since it is tough to predict a company's future beyond this period

Having said all this, here is a list of top rated Corporate Fixed Deposits:

Top Rated Corporate Fixed Deposits

Avoid Corporate FDs from Infrastructure & Real Estate Companies since most of them have still not recovered from the 2008 slowdown. Also avoid Corporate FDs from companies whose business model seems hazy and unclear. 

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