How do Corporate FDs compare with Bank FDs?

• The safety and predictability of Bank FD’s have made it the most popular avenue for locking in hard-earned money in India. According to data from RBI, bank deposits account for a whopping 53% of the total financial assets of households.

How do they compare with Corporate FDs?

• Bank Fixed Deposits are very safe instruments and enjoy deposit insurance cover up to ₹5 lakh per depositor. This means in case of bank insolvency, deposits up to ₹5 lakh are insured and paid back to the depositor. Corporate FDs do not have this benefit. 
• AAA-rated Corporate FDs rank very high on safety, and also offer much higher returns than a conventional Bank Fixed Deposit. 
• Senior citizens (investors above the age of 60) and existing customers/employees of the company get an additional benefit of +0.25% and +0.1% respectively. 
• In terms of taxation, both are treated similarly. The interest from Fixed Deposit investments are added to income and taxed at the slab rate of the investor.
• Due to the current economic stress, institutions and companies with poor financial health and high NPA’s might face difficulty in servicing their debt obligations. Hence, while the returns offered by below AAA-rated corporate FDs may be higher, it is very important to avoid investing in them.

Scenario: Suppose you invest ₹1 crore in Corporate FD instead on a Bank FD. The chart below shows the post-tax amount you would have made in each case. The tax rate is assumed at 42.74%. (highest slab rate)

The difference in return by a corporate FD versus a Bank FD is much more profound due to compounding over years. 1 Cr parked in a AAA-rated Corporate FD would yield ₹8.1 lakh more (post-tax) as compared to a Bank FD in 5 years.

We recommend investing in Bajaj Finance FDs

Name: Bajaj Finance FD 

Credit Rating: CRISIL FAAA/Stable

Interest Structure and Minimum Investment

Interest Structure:

Minimum Investment: ₹25,000

Senior citizen benefit: +0.25%

Existing customer benefit: +0.1%

(*All investments are subject to market risks)

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