A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act and regulated by the Reserve Bank of India. NBFCs are engaged in financial activities such as lending, investment, acquisition of securities, leasing, hire-purchase, and, in certain cases, accepting public deposits, subject to regulatory approval.

For fixed deposits, NBFCs provide attractive returns on investment, making them quite popular among investors. However, before you invest in a fixed deposit plan offered by an NBFC, you should understand all the aspects of an NBFC FD.

This article discusses types of FDs offered by NBFCs, features of NBFC FD and difference between a Bank FD and NBFC FD.

Types of Fixed Deposits Offered By NBFCs

NBFCs usually offer two types of fixed deposit plans. Understanding the difference between these two options helps in selecting a plan aligned with your income needs and investment goals.

Cumulative Fixed Deposit

In a cumulative fixed deposit, the interest earned during the tenure is not paid out periodically. Instead, it is added back to the principal amount and compounded at defined intervals, as per the scheme terms.

Since the interest is reinvested, future interest is calculated on the accumulated amount (principal + previously earned interest). This compounding effect may increase the maturity value over time.

At the end of the tenure, the depositor receives a lump sum amount comprising:

• The original principal, and
• The total accumulated interest.

This option may be suitable for individuals who do not require periodic payouts and prefer to receive the full amount at maturity.

Non-Cumulative Fixed Deposit

In a non-cumulative fixed deposit, the interest earned is paid out at regular intervals instead of being reinvested. Depending on the scheme, payout options may include monthly, quarterly, half-yearly, or annual interest payments.

Since the interest is not compounded throughout the tenure, the maturity amount consists only of the principal amount, as the interest would have already been paid out periodically.

This option may be considered by individuals who prefer periodic cash flow from their investment.

Features of NBFC Fixed Deposits

NBFC fixed deposits have some salient features, which are discussed below:

Interest Rate

NBFCs usually offer attractive fixed deposit interest rates, allowing depositors to grow their investments effectively. Moreover, senior citizens and female investors may also get preferential interest rates.

Investment Tenure

A flexible investment tenure is offered so depositors can easily plan for their short- and long-term financial goals. The investment tenure usually starts from 12 months and goes up to 60 months or more, depending on the NBFC you choose to invest in. Shriram Finance offers a tenure ranging from 12 months to 60 months, and you can choose from the different tenures based on your financial goals and investment horizon.

Credit Rating

NBFC fixed deposits carry a credit rating, which leading credit rating bureaus assign. This rating shows the dependability of the deposit, and you must check the credit ratings before investing in such deposits. A high credit rating means the deposit is good for investment.

Easy to Invest

NBFCs make investing in FDs a simple affair. You can invest online in simple steps as the eligibility criteria are simple and minimal documents are required. Some NBFCs also have mobile applications that you can download on your smartphone and then invest in the fixed deposit plan from the app on the go.

Difference Between Fixed Deposits Offered by Banks and NBFCs

Fixed deposits offered by NBFCs are quite different from those offered by banks. While both plans offer predictable returns and flexible tenures, the difference lies in the other aspects of the plans. Have a look at what these differences are:

Investment Tenure

Banks offer fixed deposits with a wider range of investment tenure. It usually starts from 7 days and goes up to 10 years.

Regarding NBFC fixed deposits, the tenure usually starts from 12 months. It usually goes up to 60 months, varying from one financial institution to another.

Credit Rating

Bank fixed deposits do not carry any credit rating. They are, however, secured by the DICGC (Deposit Insurance and Credit Guarantee Corporation).

NBFC FDs, on the other hand, are rated by credit rating agencies. The agencies rate the deposits to show investors whether the deposit is dependable. Deposits with a higher credit rating are usually considered good to invest in.

How do you Invest in the NBFC Fixed Deposit?

There are two main ways of investing in an NBFC fixed deposit. They are as follows:

Offline Mode

You can visit the nearest branch of the NBFC and open the FD account offline. You must fill out the physical account opening form, submit the relevant documents and make the deposit.

Online Mode

The online mode is much easier and more convenient and helps you to open the NBFC fixed deposit account instantly. For the online mode, visit the official website of the NBFC or download its mobile application and complete the process.

Conclusion

NBFC fixed deposits can be considered by investors who are looking for defined returns over a fixed tenure and are comfortable evaluating factors such as credit ratings, payout structure, and liquidity terms. Understanding the difference between cumulative and non-cumulative options, reviewing premature withdrawal conditions, and checking the assigned credit rating are important steps before investing.

Shriram Finance offers fixed deposit schemes with defined tenure options and high credit ratings assigned by recognised rating agencies. Investors are encouraged to review the latest interest rates, eligibility criteria, credit ratings and terms before investing.

FAQs

What is an NBFC fixed deposit, and how does it differ from a bank fixed deposit?

An NBFC fixed deposit is issued by a financial company engaged in lending and accepting deposits. They often offer comparatively higher interest rates than banks and flexible investment tenures.

NBFC FDs are different from bank FDs in different aspects. Here are some of them

• NBFC fixed deposits usually offer higher interest rates than banks.
• The investment tenure differs between NBFCs and bank FDs. While banks generally allow deposits ranging from 7 days to 10 years, NBFCs offer tenures usually from 12 months to up to 60 months.
• NBFC FDs are rated by authorised credit rating agencies to establish their dependability.

What is the minimum and maximum tenure for NBFC fixed deposits with Shriram Finance?

Shriram Finance offers fixed deposit plans with tenures starting from 12 months and going up to 60 months.

How can I open an NBFC fixed deposit account with Shriram Finance?

You can open a Fixed Deposit with Shriram Finance either online or by visiting a branch. For the online mode, visit the official website and complete the application process by filling in the required details and submitting the necessary documents. Alternatively, you may visit the nearest branch to open the Fixed Deposit offline, subject to applicable eligibility criteria and documentation requirements.

Are NBFC fixed deposits good for investments?

If you choose deposits with a high credit rating, then such deposits are highly dependable for investment. For instance, Shriram Fixed Deposit is

rated "CARE AAA; STABLE" By CARE Ratings Limited, "Crisil AA+/Watch Positive" by CRISIL Ratings Limited, and "[ICRA]AA+; Watch Positive" by ICRA." by India Ratings and Research and are highly dependable for investment.

Can I choose between cumulative and non-cumulative interest options?

Yes, you can choose between cumulative and non-cumulative interest options. While the former pays a lump sum interest on maturity, the latter pays the interest as regular income.

Is there a penalty for premature withdrawal of NBFC fixed deposits?

Yes, a penalty is generally levied for premature withdrawal of NBFC fixed deposits.

What is the process for renewing or closing an NBFC fixed deposit account?

You can choose to renew or close the NBFC fixed deposit by informing the NBFC of the same before the maturity date or by providing auto-renewal instructions at the time of booking the FD.