Fixed Deposits are debt securities issued by corporations to raise capital. They provide investors with fixed interest payments over a specified period and are typically considered lower risk than stocks but offer higher returns than bank fixed deposits.
Frequently Asked Questions (FAQ) about Corporate Fixed Deposits
Corporate Fixed Deposits (FDs) are investment products offered by non-banking financial companies (NBFCs) or corporate entities to investors seeking fixed returns on their investment. An entity can carry out such activity only if RBI allows it. Investors deposit a lump sum amount for a fixed tenure and receive interest payments at a predetermined rate.
Investors can invest in Corporate FDs by depositing funds with a corporate entity or NBFC for a specific period, typically ranging from a few months to several years. The interest rate offered is fixed and predetermined at the time of investment, and interest is paid out periodically or compounded until maturity.
Corporate FDs are open to individual investors, including residents, non-residents, and senior citizens, as well as corporate entities, trusts, and institutions. Investors should meet the eligibility criteria set by the issuing company, such as minimum investment amount and documentation requirements.
Corporate FDs offer higher interest rates compared to traditional bank FDs, providing investors with the potential for higher returns. They also offer flexibility in terms of tenure and interest payout options, allowing investors to choose a tenure and payout frequency that suits their financial goals.
Corporate FDs carry certain risks, including credit risk, liquidity risk, and interest rate risk. Investors should carefully evaluate the creditworthiness and reputation of the issuing company, as well as the terms and conditions of the FD, before investing. Unlike bank FDs, Corporate FDs are not covered by deposit insurance, so there is a risk of losing the principal amount in case of default by the issuing company.
Corporate FDs are regulated by the Reserve Bank of India (RBI) and governed by the Companies Act, 2013. The RBI sets guidelines and regulations to govern the issuance and operation of Corporate FDs, ensuring investor protection and transparency in the market.
Before investing in Corporate FDs, investors should consider factors such as the credit rating of the issuing company, interest rate offered, tenure, liquidity, penalties for premature withdrawal, and taxation implications. It is advisable to conduct thorough due diligence and seek professional advice if needed.
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Most Corporate FDs offer the option of premature withdrawal, but it may be subject to penalties or restrictions imposed by the issuing company. Investors should carefully review the terms and conditions of the FD regarding premature withdrawal before investing.
Yes, interest earned on Corporate FDs is taxable according to the investor's income tax slab. TDS (Tax Deducted at Source) may be applicable to interest income if it exceeds a certain threshold specified by the Income Tax Department.