Corporate Deposits: Everything You Need to Know Before Investing
- When it comes to investing, most individuals in India immediately think of bank fixed deposits (FDs). They are safe, easy, and widely available.
- However, there’s another investment option that offers potentially higher returns – Corporate Deposits.
- Corporate deposits are becoming increasingly popular among investors seeking to diversify their portfolio and earn more than what traditional bank deposits can offer.
- But before you put your money into them, it’s important to understand the details, risks, and benefits.
- This blog will help you understand what corporate deposits are, how they work, their pros and cons, and whether they are right for you.
What are Corporate Deposits?
- Corporate deposits are fixed deposits offered by companies and Non-Banking Financial Companies (NBFCs) to raise capital. Investors deposit a lump sum amount for a specific tenure, and in return, they receive a fixed interest rate at regular intervals (non-cumulative) or on maturity (cumulative).
- In simple words: Bank FD – Deposit with a bank.
- Corporate Deposit – Deposit with a company.
- Unlike bank FDs, these deposits are not covered by deposit insurance (like DICGC in banks). Hence, repayment depends entirely on the financial strength of the company.
Key Features of Corporate Deposits
- Higher Interest Rates – Corporate FDs generally offer 1% to 3% higher returns than bank FDs.
Example: If a bank FD gives 6%, a corporate FD may offer 8–9%. - Tenure Flexibility – Usually ranges from 6 months to 5 years.
- Cumulative & Non-Cumulative Options –
Cumulative: Interest is compounded and paid at maturity.
Non-Cumulative: Interest is paid monthly, quarterly, half-yearly, or annually. - Minimum Investment – Usually starts from ₹10,000 – ₹25,000 depending on the company.
- Premature Withdrawal – Allowed in some cases but may attract penalties.
Why Do Companies Offer Corporate Deposits?
- Companies often need funds for: Working capital requirements, Business expansion, Paying off debts
- Instead of borrowing from banks at higher rates, they raise money directly from investors through corporate deposits. By offering slightly higher interest, they attract investors looking for better returns.
Advantages of Corporate Deposits
- Better Returns– Higher than bank FDs, attractive for short to medium-term investors.
- Regular Income Option– Non-cumulative deposits give steady cash flow (suitable for retirees).
- Diversification– Adds another layer of variety to your portfolio.
- Simple Process– Easy to invest, similar to opening a bank FD.
Risks of Corporate Deposits
- Credit Risk– No government insurance; repayment depends on company health.
- Liquidity Risk– Premature withdrawal may be restricted or penalized.
- Default Possibility– If the company faces financial trouble, investors may lose money.
- Lower Security than Bank FDs– Unlike banks regulated by RBI, corporates are more vulnerable to market conditions.
How to Choose Safe Corporate Deposits?
Check Credit Rating
Always choose companies rated AA or above by CRISIL, ICRA, or CARE.
Research Company’s Background
Look for strong financials, consistent profits, and a history of timely repayments.
Diversify Investments
Don’t put all your money into one company’s FD. Spread across 2–3 reliable corporates.
Compare Interest vs Risk
Higher interest usually means higher risk. Balance wisely.
Avoid Very High Offers
If a company is offering unusually high returns, it may be a red flag.
Corporate Deposits vs Bank Fixed Deposit
Corporate Deposits
Bank Fixed Deposit
Companies/NBFCs
Issuer
Banks
7% – 10% (approx.)
Interest Rate
5% – 7%
Moderate to High (depends on company)
Risk Level
Very Low (insured by DICGC up to ₹5 lakh)
May be restricted; penalty can be higher
Liquidity
Delays, miscommunication, manual work
MCA & credit rating agencies
Regulation
RBI & DICGC
Moderate risk-takers
Suitability
Conservative investors
Who Should Invest in Corporate Deposits?
- Corporate deposits are suitable for: Investors seeking higher returns than banks.
- Retirees or individuals who want regular income payouts.
- Investors with a moderate risk appetite People looking to diversify short-to-medium term investments.
- People relying on 100% capital safety.
- Example: Suppose you invest ₹1,00,000 in a 3-year corporate FD at 9% interest.
- Cumulative Option: At maturity, you get ₹1,29,502 (approx). Non-Cumulative Option: You receive ₹750 per month as interest, and your principal of ₹1,00,000 at maturity. This is higher than a bank FD at 6%, which would give only around ₹1,19,000 in 3 years (cumulative).
Final Thoughts
- Corporate deposits are a high-return alternative to bank FDs but come with higher risk.
- They can be a smart option if chosen carefully focusing only on well-rated, reputed companies.
- For risk-averse investors, they should form only a small part of the portfolio (say 10–15%).
- For moderate investors, they can provide a good balance of return and liquidity if diversified wisely.
- Remember: Do not chase high interest blindly safety of capital should always come first.
