Fixed deposits are the preferred mode of investment for many investors. While investors with a low-risk profile invest in fixed deposit schemes to earn guaranteed returns, investors with a high-risk tolerance invest in fixed deposits for a stable portfolio. Besides guaranteed returns, fixed deposits also help accumulate a good corpus over flexible tenures ranging from as low as 7 days, to as high as 10 years.
When it comes to fixed deposit schemes, they are offered by banks and Non-Banking Financial Companies (NBFCs). While most of you must know about bank FDs, company FDs, i.e., those provided by NBFCs, might be a relatively new concept. So, let’s understand what these FDs are all about, and their important aspects.
What are NBFC fixed deposits?
NBFC fixed deposits, also called corporate FDs or company deposits, are investment avenues offered by financial companies. In other words, if a bank does not offer an FD scheme, it is offered by a company and called a corporate FD.
Features of NBFC fixed deposit schemes
Here are some salient features of company deposit schemes that you should know about -
- Companies offer these deposit schemes to raise funds for their operation.
- The tenure of the scheme usually ranges between 12 months and 60 months.
- You can earn high interest rates by investing in corporate FD schemes.
- You can opt for either the cumulative FD or non-cumulative FD. Under the cumulative deposit scheme, the interest earned on your investment is reinvested back into the deposit account. You get the invested amount and the interest earned in one lump sum on the scheme’s maturity.
However, under the non-cumulative fixed deposit scheme, the interest that you earn on your deposit is paid back to you. You can choose to receive this interest income monthly, quarterly, half-yearly, or annually. On maturity, the amount that you deposited and the last instalment of the interest income is paid.
So, while the cumulative deposit scheme creates a lump sum corpus, the non-cumulative deposit scheme gives you regular interest incomes and offers liquidity.
Difference between bank FD and NBFC FD
Bank fixed deposits, and non-banking fixed deposits are quite different from one another. Here are the different aspects on which the deposits differ as well as how they differ -
- Tenure:
Banks usually offer deposit schemes with tenures ranging from 7 days to up to 10 years. In the case of NBFCs, however, the deposit period is different. The minimum tenure usually starts from 12 months, and the maximum tenure goes up to 5 years.
- Security of the invested amount:
In the case of banks, the amount that you deposit is insured up to INR 5 lakhs. This means that even if the bank winds up its operations, deposits up to INR 5 lakhs would be returned to you. So, with a bank’s fixed deposits, you don’t have to worry about the safety and security of the amount you have deposited. Your investments are secured.
However, no such security is offered under NBFC FD. The insurance cover of INR 5 lakhs is applicable only on bank deposits.
That being said, NBFC FDs are not unsafe. Various credit rating agencies, like CRISIL, ICRA, etc., rate the deposits offered by NBFCs. These ratings show how safe the deposit scheme is. Schemes that enjoy a rating of FAAA or MAAA are considered quite safe investment avenues without the risk of default.
- The rate of interest on the deposit amount:
Bank fixed deposits offer lower interest rates as compared to corporate FD schemes. Their interest rate might start at 2.50%, and go up to 6.5% or 7%. However, Interest rates of fixed deposits in NBFCs are quite attractive, starting at 7% and going up to 8.50% and even above.
- Tax benefits:
If you choose to invest in a 5-year deposit scheme offered by a bank, the amount that you invest would be allowed as a deduction from your taxable income. This deduction is available under Section 80C, and you can enjoy a deduction of up to INR 1.5 lakhs. The interest you earn from 5-year deposits, and any other fixed deposit scheme would be taxable in your hands at your income tax slab rates. Senior citizens, however, can enjoy tax-free interest income up to INR 50,000 under the provisions of Section 80TTB of the Income Tax Act, 1961.
However, in the case of NBFC FDs, no tax benefits are allowed either on the amount that you invest, or on the interest earned.
Benefits of fixed deposit in NBFC
NBFC deposit schemes have a lot of benefits to offer investors. These fixed deposit benefits include the following:
- The most prominent benefit of fixed deposits in NBFC is the attractive interest rates. Interest rates of fixed deposits in NBFCs offer the best returns on your investments.
- NBFCs offer flexible tenure options to choose from. You can, thus, plan for both your short-term and long-term financial needs by investing in corporate FDs.
- Investing in the deposit scheme is quite easy and convenient. You can invest online within minutes. Moreover, the documentation process is simple, allowing you to open a deposit account with a limited number of documents.
- According to your investment strategy, you can choose from cumulative and non-cumulative deposit schemes, and either create a corpus for your financial goals, or choose to receive regular incomes.
- Deposits rated FAAA and MAAA also keep your money secure while offering attractive returns.
- Senior citizens can enjoy additional interest rates on their investments.
Things to keep in mind when investing in NBFC deposits
When investing in a company deposit scheme, here are some things to keep in mind -
- Choose the repayment tenure wisely. Premature withdrawals would reduce your interest income and are not recommended.
- Always choose deposits that are backed by FAAA or MAAA ratings, and are rated as reputed credit agencies. Choose to invest with reputed NBFCs that have a good market presence and a strong legacy.
- Try and opt for the maximum deposit tenure for the highest interest rates.
The bottom line
Fixed deposits offered by NBFCs can be an excellent addition to your financial portfolio. You can choose a suitable tenure, and avail of high interest rates on your deposits. So, understand what NBFC deposits are all about, how they work, and then pick the right scheme.
Shriram Finance offers one of the best NBFC fixed deposit schemes for you to choose from. Shriram’s FD is accredited with a [ICRA]AA+ (Stable)” by ICRA and "IND AA+/Stable" by India Ratings and Research, making it safe and secure. You can invest for 12-60 months and enjoy interest rates up to 9.40%* p.a. Senior citizens get a 0.50%* p.a. additional interest on their deposits, making the scheme all the more attractive for them. So, visit fixed-deposit to find out what Shriram Finance FD offers and then make your choice to invest in the best NBFC fixed deposit scheme.
