Corporate Fixed Deposits in India

A Company Fixed Deposit is a deposit placed by investors with companies for a fixed term carrying a fixed rate of interest. CFDs are like unsecured loans borrowed by a company from the investors. These are similar to bank fixed deposits with a few differences. In this, the fixed deposits are held with companies. CFDs are offered by manufacturing companies and NBFCs for different tenures and with a different frequency of interest payments.

In simple words, the deposits placed by investors with financial institutions, Housing Finance companies and Non-Banking Finance Companies (NBFCs) for a fixed term carrying a prescribed rate of interest is called Corporate / Company Fixed Deposit.

Types of Company FDs

CFDs are of 2 type-:

• Cumulative: In the cumulative CFDs, interests are accumulated along with the principal amount and the entire amount is paid at the end of the term. No payment is made within the investment term.
• Non -Cumulative: In Non-Cumulative CFDs, interest earned is paid on a regular basis. It can be monthly, quarterly, half-yearly or annually depending on the investors choice.

Company Fixed Deposits- Key Features

1. CFDs have fixed-term and offer a fixed rate of returns.
2. Investors can invest in different tenures ranging from months to years.
3. Interest payments are paid monthly, quarterly, half-yearly and yearly.
4. Premature withdrawals are allowed.
5. Companies offering CFDs are rated by rating agencies like CRISIL & ICRA.
6. CFDs are governed by Section 58-A of the Companies Act 1956.

Corporate Fixed Deposit Advantages

CFDs offer many benefits to an investor including-

• Offer Higher Returns- Company Fixed Deposits offer higher interest rates when compared to banks.
• Tax Benefits- Interest earned up to ₹5000 in a year is exempted from TDS.
• Steady Income- CFDs are a good source to earn regular income monthly, quarterly, half-yearly or yearly.
• Loan against deposit- Investors can avail a loan up to 75% of the deposit amount after 3 months from the date of deposit.
• Diversification- CFDs are useful in investment diversification, especially for low-risk investors who have limited investment options.

Company Fixed Deposit Disadvantages

An investor must consider the following factors before investing in a CFD-

• Default Risks- CFDs are not entirely risk-free. Companies offering CFDs may default on interest and principal repayment due to bad financial position. CFDs are governed by the Companies Act, according to which, if a company is winding up, the first preference for repayments is given to shareholders rather than the fixed deposit holders.
• Penalty for Preclosure- Most companies will levy a penalty fee for preclosure of the accounts.
• Taxable- Interest earned on CFDs above ₹5000 are taxed as per the tax bracket of the investors. TDS is deducted at 10% for investors. Investors falling in zero/nil tax bracket, need to submit Form 15H every financial year to avoid TDS deduction.

Taxation on Company Fixed Deposits

The interest earned on CFDs is taxable falls in the 'income from other sources' category of an investor. TDS is deducted for interest amount exceeding above ₹5,000 a year. Investors falling in zero/nil tax bracket, need to submit Form 15H every financial year to avoid TDS deduction.

Who Should Invest in CFDs?

• CFDs are excellent investment instruments for investors who are looking for stable returns without too many risks.
• Senior Citizens can also benefit from CFDs as it can help them earn a regular income.

Key Takeaways

1. CFDs are fixed-term deposits offering a fixed rate of returns. They are of two types- Cumulative and Non-Cumulative.
2. CFDs are issued by manufacturing companies and NBFC. Each CFD is rated by the rating agencies.
3. CFDs offer higher returns than bank deposits. However, these are also riskier than bank deposits.
4. TDS is deducted for interest earned above ₹5,000 a year on CFDs.

1. 1. What is Company Fixed Deposit?

   A company fixed deposit is a fixed-term deposit issued by a manufacturing company or an NBFC. The CFDs offer a predetermined fixed rate of returns.

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2. 2. How are interest payments made in Company FDs?

   Investors have the choice to choose cumulative and non-cumulative option for interest payments. In a cumulative option, interest is added to the principal and paid on maturity at the end of the term. In the non-cumulative option, interest is paid periodically like monthly, quarterly, half-yearly and yearly.

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3. 3. Are company fixed deposits taxable?

   Yes, interest earned above ₹5,000 a year from company FDs are taxable and the interest is paid after deducting TDS. The earnings will be added to your income and taxes will be levied as per your tax slabs.

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4. 4. What's the minimum investment amount in a CFD?

   The minimum investment amount for a company FD varies from company to company. For example, the minimum investment amount in Bajaj Finance FDs is ₹10,000 whereas for FDs issued by HDFC it is ₹20,000.

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5. 5. Do senior citizens get higher interest on company FDs?

   Yes, most companies offer a higher interest rate to senior citizens. The additional interest varies from 0.10 to 0.50%.

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6. 6. Can I withdraw before maturity in a CFD?

   Yes, CFDs have premature withdrawal facility. However, you can withdraw only after 3 months from the date of deposit. You will also have to pay a penalty if you withdraw before maturity.

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7. 7. Can I get a loan against a Company FD?

   Yes, loan against deposit facility is available in CFDs. Investors can avail a loan up to 75% of the invested amount after 3 months from the date of deposit. The rate of interest on the loan will be 2% higher than the interest rate offered on the FD.

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8. 8. Who can apply for Corporate Fixed Deposit?

   Any Indian individual or family trust, club, association, society, HUF, sole proprietorship, partnership firm, company, or group of companies can make a fixed deposit.

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9. 9. Can Company FD be opened in name of a Child?

   Yes. One can make a deposit in the name of minor provided such minor is represented by his natural or legal guardian and the Application Form for the deposit is signed by the natural/legal guardian, on behalf of the minor. All communication in relation to the deposit shall be addressed to the guardian.

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10. 10. Who can apply for a Company FD?

    Corporate or Company FDs are a very popular option among senior citizen investors as they give them assured returns, which are generally 1% to 3% higher than the interest rates being offered by banks for similar periods. Below is the list of Individuals and Group enterprises who can invest in corporate FDs.

    • Individuals
      • Residents of India
      • Members of Hindu Undivided Family (HUF)
    • Group enterprises
      • Partnership Firms
      • Corporates
      • Cooperatives Educational institutions
      • Trusts and Foundations
      • Cooperatives Clubs
      • Charitable Trust
      • Societies
      • Associations

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11. 11. What are the documents needed by individuals to open a CFD?

    Below is the list of documents needed by individuals to open a CFD.

    • Government-validated ID Proof (any 1)
      • Passport
      • Ration Card
      • Driver's license
      • Voter ID Card
      • Aadhaar Card
    • Valid employee's ID
    • NREGA job card
    • Address proof
    • Permanent Account Number (PAN)
    • 2 color passport-size photographs

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