Corporate fixed deposits (FDs) are financial instruments issued by companies to raise funds for various purposes such as expansion, new projects, and working capital requirements. These deposits are generally used by companies as an alternative to bank loans, as they are less expensive and more convenient.
In India, corporate FDs are regulated by the Reserve Bank of India (RBI) and are issued by companies registered with the Ministry of Corporate Affairs (MCA). These deposits provide investors with higher returns than regular bank FDs, since companies are willing to offer higher interest rates to attract investments from the public.
The interest rates offered on corporate FDs vary from company to company, depending on their credit rating. Generally, the higher the credit rating of a company, the higher the interest rate they can offer. Corporate FDs are usually issued for a minimum period of 1 year and a maximum period of 5 years.
The investment limits for corporate FDs are generally higher than those for bank FDs. However, investors should be aware that corporate FDs carry greater risk than normal bank deposits due to the higher risk associated with investing in corporate bonds.
Unlike bank FDs, corporate FDs cannot be prematurely withdrawn. If the investor wishes to redeem their investment before the maturity date, they must sell their deposits on the secondary market, which can be volatile and subject to fluctuations in the market.
In summary, corporate FDs provide investors with relatively higher returns than bank FDs, but they also come with higher risks. Investors should always evaluate the creditworthiness of the issuer before investing, and should be aware of the risks associated with such investments.