Table of Contents
- Choose a corporate fixed deposit
- Check the corporation's credit rating
- Opt for a cumulative fixed deposit
- Go with a longer fixed deposit tenure
- Take a loan against your FD
- Implement the ladder strategy
Fixed deposits have been in existence for decades, and to date, are one of the most sought-after investment strategies. An investment in FD is so popular because the investment is safe, and the returns are guaranteed. When you decide to open an online fixed deposit account, you know exactly how much you will earn at the end of the maturity period. Hence, even if there was a decline in the market interest rates, the tragedy won't affect your returns in any manner. So, now that we know why an investment in a fixed deposit is so beneficial, let's understand how you can maximise your returns from this investment.
Choose a corporate fixed deposit
Now, you may hear the words, 'Corporate Fixed Deposit', for the first time - so, first, let's explain what a corporate FD means. A fixed deposit facility can either be offered by banks or NBFCs, and other corporates authorised to make such an issuance. The FDs issued by banks are called bank FDs, and those issued by other corporate houses are called corporate FDs.
It is observed that the fixed deposit interest rates of corporate fixed deposits are usually higher by 1-3% - when this difference is considered over the entire maturity period and on the sum invested, the resulting difference turns out to be significant. Sometimes, the interest rates offered by bank fixed deposits are so low that it becomes difficult to beat inflation. In India, where the inflation rate is high, investing in corporate fixed deposits makes more sense.
Check the corporation's credit rating
Credit rating agencies, namely CRISIL and ICRA, rate the fixed deposit instruments issued by banks and corporates. This rating is similar to that given to debentures and fulfils the same purpose. Ratings are widely relied upon by investors and are used to gauge the creditworthiness of the issuing institution. A high rating indicates that the instrument is safe to invest in and carries a very low risk of default.
Now, you must have heard the saying, 'The higher the risk, the higher the return.' As the fixed deposits with the highest crediting carry low risk, the return they offer might be slightly lower. However, it would help if you didn't look for higher interest rates while compromising on safety and reliability. Your priority should be an instrument having an outstanding credit rating that meets your investing goals.
Do your research and compare the corporates issuing FDs. The corporate should enjoy a good market reputation and should be trustworthy.
Opt for a cumulative fixed deposit
Shriram Finance online fixed deposit offers a cumulative fixed deposit facility. Cumulative means that the interest payouts will not happen at regular intervals and will only happen at the end of the maturity period. How is this beneficial, you would wonder.
See, as the instrument accumulates all earnings, you get to earn interest on interest, also called compound interest. Compounding increases your effective yield over the same period, and the interest earned on interest is basically additional free money for you!
Go with a longer fixed deposit tenure
Usually, the interest income on long-duration fixed deposits is more as compared to short-term deposits. The reason behind this is simple - the corporates get to use the money for a more extended period, thereby earning more on the principal.
At Shriram Finance, you can earn up to 10.98% p.a.* effective yield inclusive of the additional 0.50%* p.a. for senior citizens and 0.10%* p.a. for women depositors with a cumulative fixed deposit. With Shriram Finance's online investment, you can open an account and invest money easily, all from the comfort of your home.
Take a loan against your FD
A fixed deposit is an exceptional way of meeting your money goals. But, what if there is an emergency? You can break the fixed deposit or take a loan against your FD to meet your urgent money needs. A premature withdrawal from the FD is equivalent to breaking a business agreement and will have its consequences. You will have to deal with a reduced interest income payout coupled with a penalty charge. So, breaking an FD is usually not advisable.
See if you can get an overdraft facility against the FD - you will be charged interest only on the amount utilised and only for the number of days the money has been utilised. Your fixed deposit will work as security and will make it easier for you to obtain a loan. At leading corporates, you can obtain up to 75% of the deposit amount as a loan.
Implement the ladder strategy
The ladder strategy is easy and can be personalised to meet your requirements. To create a ladder means to open different fixed deposit accounts with varying maturity. Let's understand how such a strategy can help.
Say you have Rs.1,00,000 to invest in FDs. Instead of investing the entire amount in a single fixed deposit, having a particular maturity period, consider having five different FD accounts. You can invest Rs.20,000 each in FDs maturing in 1,2,3,4 and 5 years. This way, if you have a drastic cash requirement at the end of the 1st year, you can use the money generated from the first fixed deposit. However, if it turns out that there is no significant money needed at the end of the first year, then the maturity amount can be reinvested in another FD. Such a strategy will help you balance out the interest income as well.
Shriram Finance provides fixed deposit facilities that meet all the requirements mentioned above. The fixed deposit tenures are flexible, and you can select a duration suitable for you. The interest rates are competitive with a 'MAA+/ with Stable Outlook' rating given by ICRA.
Conclusion
There are so many institutions providing fixed deposit facilities these days. Therefore, it becomes all the more essential to research appropriately and conduct a thorough background check of the corporate.
A corporate fixed deposit is an ideal blend of high returns and low risks, making it highly attractive to income earners. Follow the pointers mentioned above while looking for an FD facility.
