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There are many investment options available these days. But when it comes to safe investments, another name besides bank FDs is rapidly emerging: Corporate FDs. Corporate FDs are often compared to bank FDs. Corporate FDs are issued by companies, such as NBFCs (Non-Banking Financial Companies) and HFCs (Housing Finance Companies), which borrow money from investors at a fixed interest rate and return it with interest upon maturity. However, the question is bound to arise: Is investing in a corporate FD safe? Here, learn everything you need to know about corporate FDs.

Is a corporate FD safe?

It's difficult to answer this question with a simple "yes" or "no," as the safety of a corporate FD depends on the company's reputation and credit rating. If you invest in a trustworthy company with a good rating and a strong track record, the risk is significantly reduced.

Why invest in corporate FDs? 5 key reasons
1. Higher returns

Corporate FDs often offer higher interest rates than bank FDs. If you want better returns without getting involved in the stock market, this is a good option.

2. Regulated and reliable

NBFCs and HFCs are regulated by the RBI and the National Housing Bank (NHB). So, don't be under the misconception that only bank FDs are safe. FD schemes from highly rated companies are considered just as safe as bank FDs.

3. Portfolio diversification
You don't have to choose between bank FDs and corporate FDs. You can balance your portfolio by investing a little in bank FDs and a little in corporate FDs.

4. Fixed returns
It doesn't fluctuate like the stock market. You will receive a fixed return. This makes monthly fixed income planning easier.

5. Easy Investment Option
Corporate FDs are very easy to understand and invest in. All you need to know is how much you are investing, for how long, and at what interest rate.

Risks of Corporate FDs
1. Default Risk
If the company's financial situation deteriorates, it may fail to return the interest or principal. In such cases, getting your money back can be a lengthy process.

2. Impact of Interest Rates and Inflation
If market interest rates rise, you will be left with a lower return than before. On the other hand, if inflation increases, the real return will decrease.

3. Liquidity Risk
Corporate FDs are not as easily liquidated as bank FDs. Withdrawing cash immediately when needed can be a little difficult.

How to Manage Risk in Corporate FDs

1. Check the Company's Credit Rating

Check the company's rating before investing.
Agencies like CRISIL, ICRA, and CARE rate FD programs.
Companies with an 'AA' or 'AAA' rating are considered relatively safe.
2. Understand the company's track record

Find out whether the company has been returning interest and principal on time.
Companies with a clean record have significantly lower risk.
3. Choose your investment period wisely

If you're risk-averse, choose an FD of 1 to 2 years.

Locking in for a longer period can increase the impact of interest rate fluctuations.

4. Diversify

Don't invest all your money in one company.
Invest small amounts in different companies to spread the risk.

Make corporate FDs only one part of your larger portfolio.

Who should invest in corporate FDs?

Those who want a fixed income but slightly higher returns than bank FDs.

Those with a low to medium risk profile.

Those who want some diversification in their portfolio.

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.