Top 5 differences between Corporate FD and Corporate Bond Fund

  • Deposit
  • 20 Days ago

Written by - Shriram

I have a lump sum of money with me and want to invest for a period of 5 years. I'm not ready to take risks, but I want good returns on my investment,” said Ashvini. 

Ashvini wanted to pick a safe investment option that offers reliable growth and assures return at maturity. Considering the current economic condition and market fluctuation, a Corporate Fixed Deposit (FD) and Corporate Bond Fund are the most common investment options that match the description of her investment choice.
  
In 2022, many investors like Ashvini want to invest a considerable amount of money but do not want to take any risks. As COVID-19 disrupted the investment market, investors are very careful in choosing their investment options. While the banks are reducing FD interest rates, NBFCs (Non-Banking Financial Companies) like Shriram are increasing the FD interest rates by up to 8.75% per annum to help investors make a fortune from fixed deposit investments. 

What is a Corporate Fixed Deposit?

A company or a corporate fixed deposit is a profitable investment option offered by NBFCs and financial institutions to help investors who want to reap additional benefits from an FD. Like banks, NBFCs accept deposits from investors for a fixed tenure and interest rate. However, you should know that NBFCs offer higher interest rates than most banks.  

NBFCs that offer corporate fixed deposit accounts are recognised by rating agencies like CRISIL, ICRA, CARE, etc., for safety. So, a company fixed deposit with higher ratings will carry lower chances of default at the end of FD tenure. So, when you choose to invest in an NBFC, you know the ratings to consider and start your investment. 

There are commonly two types of corporate fixed deposit schemes; 
 
  1. Cumulative Fixed Deposit 
  1. Non-Cumulative Fixed Deposit 

What is a Corporate Bond Fund?

A corporate bond fund is typically a mutual fund that invests at least 80% of its assets in the highest-rated bonds issued by companies/corporates. Organisations sell these corporate bonds to fund expenses like advertising and working capital. 
 
The credit risk remains low as corporate bond funds are invested in AA+ and above-rated debt securities. However, corporate bond funds are subject to interest rate risks depending on the tenure. Hence, corporate bond funds carry moderate interest rate risk compared to company fixed deposit schemes. 

There are two types of corporate bonds; 
  1. Convertible bonds – You can convert these bonds into stocks. 
  1. Non-convertible bonds – You cannot convert these bonds into stocks.   

Corporate Fixed Deposit Vs. Corporate Bond Fund 

Although there are many market-based investment options, corporate FD and corporate bonds are vital in offering customers growth at a reasonable interest rate. Here are the top 5 differences between a corporate fixed deposit and a corporate bond fund you must know before investing.
 
Features  Corporate Fixed Deposit  Corporate Bond Fund 
Type  Preferable investment tool for risk-averse investors who want to grow wealth safely  Preferable investment tool for investors who want to take a low risk to grow their savings 
Safety  A corporate fixed deposit is highly safe  A corporate bond fund carries a low risk 
Returns  Interest rates do not fluctuate, so you are assured of stable returns  Interest rates are subject to market fluctuations; hence you receive varied returns 
Tenure Flexibility  Investors can choose their flexible FD tenures   May or may not have flexible tenure 
Tax  Returns from a corporate fixed deposit are subject to tax  Returns from the corporate bond fund are not subject to tax 

Top 3 Advantages of a Corporate Fixed Deposit 

A corporate fixed deposit offers investors several advantages in making quick and safe investment decisions. Here are the top three advantages you must know before you book a corporate FD with an NBFC like Shriram. 

1. Loan against Corporate Fixed Deposit

When you book a corporate FD with NBFCs like Shriram, you can take a loan against your corporate fixed deposit during financial emergencies.  

2. Higher Interest Rates

Renowned NBFCs like Shriram offer one of the highest FD interest rates of up to 8.75% per annum (p.a.), including 0.50% p.a for senior citizens.  Besides, the interest rates on a Shriram Corporate FD are higher than most of the bank’s FD rates and competitors.   

3. Easy Liquidity

A corporate fixed deposit allows you to liquidate your FD funds quickly in case of emergencies. However, you are subject to a minor penalty amount. 

Top 3 Advantages of Corporate Bond Funds

Here are the top three benefits of investing in a corporate bond fund.
  
1. Many Investment Options – Inventors have various options to choose from while investing in corporate bonds.  There are short-term, medium-term, and long-term bonds distinguished according to the tenure of the bonds. 

2. Security – Corporate bonds funds are safer than stocks. Although the interest rates are market-dependent, corporate bonds offer reasonable interest rates to investors.
 
3. Liquidity – Same as a fixed deposit, an investor can quickly liquidate/sell their corporate bond funds to other investors at zero cost. 

Choose a Corporate FD like Shriram Fixed Deposit for Safe Investment

Assuming that you are looking for an investment choice that offers total security and assured profits at maturity, a corporate fixed deposit with Shriram is the best investment tool to start your investment. While corporate bonds provide a higher maturity amount, they are prone to market fluctuations. On the other hand, in a corporate fixed deposit, you get confirmation on your returns without any market influences. Hence, choose a corporate fixed deposit over corporate bond funds and book an FD with Shriram to grow your wealth safely. 

FAQs 

What is a corporate fixed deposit? 

A corporate fixed deposit is a profitable investment option offered by NBFCs like Shriram and financial institutions to help investors who want to reap the additional benefits of an FD.  

Is a corporate fixed deposit a good investment? 

Yes, a corporate fixed deposit is a good investment because it offers assured returns at higher interest rates than most banks and allows you to take loans in times of emergency. You must know that a corporate FD from Shriram offers safety for your fixed deposit investment. 

How risky is a corporate fixed deposit? 

A corporate fixed deposit carries a low to zero risk. However, you have to be well aware of the safety rating of an NBFC or company before you make a corporate fixed deposit investment.  

Are corporate bonds better than a corporate FD? 

Although corporate bonds offer good returns, they are unsafe and do not guarantee assured returns to investors. Investments are considered a profit tool, so a corporate FD is better than a corporate bond.  

Key Highlights 

  • In 2022, many investors want to invest a considerable amount of money but do not want to take any risks.  
  • Corporate Bonds provide a higher maturity amount but are prone to market fluctuations. 
  • While the banks are reducing FD interest rates, NBFCs (Non-Banking Financial Companies) like Shriram are increasing the FD (Fixed Deposit) interest rates by up to 8.75% per annum to help investors make a fortune from fixed deposit investments. 
  • A Corporate Fixed Deposit from Shriram is the best investment tool to start your investment as you get confirmation on your returns without any market influences.