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.
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