Disadvantages of Corporate FD: The trend of investing money in corporate FD has increased recently, but it also has its own disadvantages, about which very few people know…
Corporate FD is becoming increasingly popular. In the era of decreasing interest on FD, people are looking for other means of investment. In such a situation, people have seen corporate FD as a better option. However, the problem is that people start investing on hearsay, due to which they have to repent later. Today we are going to tell you some things about corporate FD, which very few people know.
What is corporate FD?
Corporate or company FD is a term deposit. These FDs are issued by finance, housing finance companies and other NBFCs. This is a good way for companies to raise money from the general public. In this, the return is fixed like bank FD, but its interest rate is usually higher than bank FD.
Do this work first
Be it corporate FD or any other investment, one should not invest without setting financial goals. This will let you know how much money you will need in how much time. Invest accordingly. Financial goals can include things like retirement planning, buying a car, house, marriage, child’s education.
Compare these things
After deciding the financial goal, one should compare the interest rates, tenure and minimum deposit of various corporate FDs. By investing without investigating the features and suitability of a corporate FD, i.e. how suitable it is for you, you can invest money in a low yielding FD.
It is important to pay attention to credit rating
Before investing in corporate FD, definitely consider the rating. Top credit rating agencies in India rate company fixed deposits. These include CARE, ICRA and CRISIL. Always choose FD with AAA rating and check the ratings of not just one but different agencies. Stay away from low rated or unrated corporate FDs, even if they offer high returns.
Greed for higher returns will prove costly
Many people invest in corporate FDs only after seeing high returns, which is not the right approach. Before investing in FD, it is important to look at the company’s past track record, financial strength and interest pay out. It is better to stay away from companies which are not well-known and are in financial or management trouble. Your hard-earned money can get stuck if you invest money in wrong company’s FD.
Do not exit before this time
If the company closes the FD before maturity i.e. completion of tenure, it may have to pay loss of interest and penalty. Premature withdrawal of money from corporate FD may result in loss of 2 to 3 percent in interest. Therefore, choose the tenure of FD carefully and maintain the investment till the end.
