Corporate Deposits

A corporate deposit means an interest-bearing deposit product. Corporate deposits are offered by huge commercial companies, public institutions, government agencies and non-profit organisations. Retail deposits are held by consumers, while business deposits are held by SMEs. Corporate deposits operate like bank FDs. Only difference is that bank deposits are provided by banks, whereas corporate deposits are issued by private and public companies. An investor will lend money to the company for a pre-decided tenure at fixed interest rate. Corporate deposits tend to offer incremental 2-3% return in comparison to the bank fixed deposit.

Individuals believe that corporate fixed deposits are not wise investment choices at the time when deposit rates which are provided by banking organisations are “high.” However, a carefully-selected company fixed deposit should always be there in an investor’s debt portfolio. This is because it can help diversify the risk. These investments carry lower risk in comparison to the equity investments.

While making investments, only interest rates should not be considered. Rather, focus should also be on prevailing inflation rate or rate at which the rupee depreciates. Individuals need to know that average corporate deposit provides slightly higher rate in comparison to bank FD. The company fixed deposit offers interest rate which is slightly closer to prevailing inflation rate. The company deposits provide a slightly higher interest rate due to the risks associated with it. If the company does not perform well or if the industry in which the company operates slows down, it might not be in a position to pay interest rates. Therefore, adequate research should be done before selecting the company. More often than not, it is advisable that investors should invest in those companies which have strong financial structure and solid market position.

Investors should avoid investing in the companies which have no or low credit ratings. No matter how high interest rates they offer, investors are advised to avoid choosing such companies. Looking at credit ratings provides a good starting point.

corporate desposit
Which type of investor prefer corporate deposits?

Investors should be aware that any financial instrument offering higher expected return comes with higher investment risks. It is of utmost importance to understand all these risks and make sure that these risks fit in investor’s profile. Corporate deposits are better than a bank fixed deposit as corporate deposits provide higher interest rate. Corporate deposits of stable companies should be considered by investors having lower risk appetite and who cannot afford volatility of an asset class such as equity.

Therefore, investors who are nearing retirement or who are in their 50s should consider investing a major portion of their capital in corporate deposits. By doing so, they will get better interest rate than a bank FD and they will also be protected from the volatility of equities. Apart from these benefits, an investor with lower risk appetite will also be able to diversify his/her investments. An ideal combination of debt and equity can generate returns which can beat inflation by a wide margin.

How VSRK Capital can help?

VSRK Capital can provide suggestions on how, where and when to invest. The advice can be customized according to the risk profile and other factors like age, financial goals etc. Since an optimal combination of debt and equity is important, VSRK Capital can provide such combination by leveraging its market expertise and knowledge about various financial instruments. VSRK Capital can help in selecting the ideal path to become financially fit. Depending upon market situation and changing interest rate environment, VSRK Capital can help in revising the portfolio from time to time in such a way that ideal balance remains the same.

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