The Beginner’s Guide to Corporate Fixed Deposits (FDs) & NCDs
✅ What Are Corporate Fixed Deposits?
Corporate Fixed Deposits are term deposits offered by non-banking financial companies (NBFCs) and corporate houses, instead of banks. Just like bank FDs, you invest a lump sum for a fixed tenure and earn a pre-decided interest rate.
📌 Key Features:
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Higher Interest Rates: Generally offer better rates than bank FDs.
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Fixed Tenure: Varies from 1 to 5 years typically.
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Credit Rating: Issued by reputed credit rating agencies like CRISIL, ICRA, or CARE.
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Risk Level: Slightly higher risk than bank FDs since they’re not insured by RBI.
✅ What Are NCDs (Non-Convertible Debentures)?
NCDs are debt instruments issued by companies to raise capital from the public. These instruments pay regular interest (called coupon payments) and return the principal at maturity. As the name suggests, they cannot be converted into equity shares of the issuing company.
📌 Key Features:
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Secured vs Unsecured: Secured NCDs are backed by assets; unsecured are not.
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Interest Pay-outs: Monthly, quarterly, annually, or at maturity.
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Listed on Stock Exchanges: Many NCDs are listed and can be traded before maturity.
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Tenure: Typically ranges from 1 to 10 years.
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Credit Rating: Crucial to assess the issuer’s credibility.
📊 Corporate FDs vs. NCDs – Quick Comparison
| Feature | Corporate FDs | NCDs |
|---|---|---|
| Issued By | NBFCs / Corporates | Corporates / Financial Institutions |
| Risk Level | Moderate | Varies (Secured less risky) |
| Interest Rate | 6% – 9% (varies) | 7% – 10.5% (varies) |
| Liquidity | Premature withdrawal allowed (with penalty) | Listed NCDs can be traded |
| Tenure | 1 to 5 years | 1 to 10 years |
| Taxation | Interest taxed as per income slab | Same as FDs |
| Credit Rating | Yes | Yes |
🔍 Factors to Consider Before Investing
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Credit Rating: Always look for AAA or AA-rated instruments for lower risk.
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Issuer Reputation: Stick to well-known, financially strong companies.
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Liquidity Needs: NCDs may offer better liquidity via secondary market.
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Tax Implications: Interest income is fully taxable as per your slab.
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Investment Horizon: Match your investment horizon with the product tenure.
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Premature Exit Options: Check the penalty terms on early withdrawals for FDs; liquidity in NCDs depends on demand in the market.
💡 Who Should Consider These Investments?
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Investors looking for fixed and predictable income.
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Retired individuals or conservative investors.
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Those seeking diversification beyond mutual funds and equities.
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Investors in higher tax brackets who want better post-tax returns (can explore tax-efficient options with advisors).
✅ Pros and Cons at a Glance
Advantages:
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Higher returns than bank FDs
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Regular income through interest
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Variety of tenures and pay-out options
Disadvantages:
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Not insured like bank FDs
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Default risk if company is not financially sound
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Taxable returns
📘 Final Thoughts
Corporate FDs and NCDs can be smart options for those seeking steady returns with moderate risk. However, due diligence is critical. Assess the credibility of the issuer, credit ratings, and your own liquidity needs before investing.
They can be a part of your fixed-income allocation, especially when you want better returns than banks but without jumping fully into volatile equity markets.
🔐 Disclaimer:
This blog is for educational and informational purposes only. It does not constitute a recommendation or advice. Assured Finmart Pvt. Ltd. is a distributor of financial products, and we do not offer any investment advisory services. Please consult with a SEBI-registered investment advisor or a qualified financial expert before making any investment decisions. Past performance is not indicative of future results. Investments are subject to market risk, and the investor should read all related documents carefully before investing.
