How will you benefit from investing early in mutual funds?

Fixed deposits are one of the secure investment avenues that guarantees consistent interest rates, and therefore, are a darling of many. While the interest rates in FDs in banks is declining, some companies are still offering higher returns across different tenures.

As a rule, a fixed deposit with a company carries a higher risk than one with a bank.

Deposits up to Rs 5 lakh in banks are secured with insurance cover offered by the Deposit Insurance and Credit Guarantee Corporation (DICGC).

But there is no such insurance cover for company FDs. In this scenario, the security of the capital depends on the financial health of the company concerned.

So, it is very important for the depositor to check the rating and the financial health of the company before trusting it with the money.

Credit rating

This is where credit rating comes into play. Various credit-rating firms, like CRISIL, ICRA, and CARE assess the credit quality of these companies that take deposits from the public. Naturally, a high-rated company deposit with AAA or similar grade is always highly preferable.

Tenure and payment

Generally, NBFCs offer FDs for tenures varying between 12 months and 60 months.

There are two types of interest payment options on company FD — cumulative and con-cumulative.

For con-cumulative deposits interest may be payable at monthly, quarterly, half-yearly or annually.

Attractive rates

A few highly-rated NBFCs offer attractive interest rates up to 7.95% per annum on cumulative fixed deposits for 5 year tenure.

Shriram Transport Finance Company (MAA+/Stable outlook by ICRA, FAAA/Stable by CRISIL)  offers FD’s between 12 to 60 months. Now they are offering 7.01% to 7.95% interest on cumulative deposits for the general public.

Shriram City Union Finance, which is “MAA+/ with Stable Outlook” rated by ICRA, also offers 7.01% to 7.95% interest on cumulative deposit for the general public for tenures between 1 year and 5 years.

Bajaj Finance (FAAA/Stable rated by CRISIL and MAAA/stable rated by ICRA) offers rates between 5.75%and 6.60% on cumulative deposit for the general public for a minimum 12-month to a maximum 60-month period.

Kerala Transport Development Finance Corporation (KTDFC) offers interest from 6% to 5.75% for the general public on 1 to 5-year FDs. The deposit is guaranteed by the Kerala government.

PNB Housing Finance (FAA+/- rated by CRISIL and AA/Stable rated by CARE) now offers an interest rate ranging from 5.9% to 6.70% to the general public.

Apart from these entities, there are other companies that also offer FDs to the public.

In comparison, interest rates on FD by banks are lower. For example, the 6.25% interest on FD for tenure up to 5 years offered by YES Bank is the highest.