Learn about corporate fixed deposits, their higher returns, associated risks, credit ratings, and how to evaluate if they're right for your portfolio.
Corporate FDs offer 1-2% higher returns than bank FDs. But is the extra return worth the additional risk?
Understanding corporate FD risks is crucial before chasing higher yields. Some investors have lost their entire principal when companies defaulted.
What Are Corporate FDs?
Corporate Fixed Deposits are fixed-term deposits offered by Non-Banking Financial Companies (NBFCs) and corporations, not banks.
| Feature |
Bank FD |
Corporate FD |
| Issuer |
Banks |
NBFCs, corporates |
| Insurance |
₹5 L DICGC coverage |
None |
| Returns |
6-7% |
7-9% |
| Risk |
Very low |
Low to high |
| Regulation |
RBI (strict) |
RBI (less strict) |
Calculate your returns: Use our FD Calculator to compare options.
Current Corporate FD Rates (2024)
High-Rated Companies (AAA/AA+)
| Company |
1 Year |
3 Years |
5 Years |
Rating |
| HDFC Ltd |
7.40% |
7.50% |
7.40% |
AAA |
| Bajaj Finance |
7.50% |
8.00% |
8.10% |
AAA |
| Mahindra Finance |
7.75% |
8.10% |
8.25% |
AAA |
| Shriram Finance |
8.23% |
8.50% |
8.50% |
AA+ |
| LIC Housing |
7.50% |
7.75% |
7.75% |
AAA |
Medium-Rated Companies (AA/A)
| Company |
1 Year |
3 Years |
5 Years |
Rating |
| Sundaram Finance |
7.55% |
7.80% |
7.80% |
AAA |
| PNB Housing |
7.70% |
8.00% |
8.05% |
AA |
| IIFL Finance |
8.25% |
8.75% |
8.75% |
AA- |
Rates as of late 2024. Check company websites for current rates.
Understanding Credit Ratings
What Ratings Mean
| Rating |
Risk Level |
Meaning |
| AAA |
Lowest |
Highest safety, strong financials |
| AA+ |
Very low |
High safety |
| AA |
Low |
Adequate safety |
| AA- |
Low-moderate |
Good but some concerns |
| A+ |
Moderate |
Acceptable |
| A |
Moderate-high |
Some vulnerability |
| Below A |
High |
Speculative, avoid |
Rating Agencies in India
| Agency |
Full Name |
| CRISIL |
Credit Rating Information Services of India |
| ICRA |
Investment Information and Credit Rating Agency |
| CARE |
Credit Analysis & Research |
| India Ratings |
Fitch group company |
Always check: Multiple ratings from different agencies.
The Risk-Return Trade-off
Extra Return vs Extra Risk
| Rating |
Typical Extra Return (vs SBI FD) |
Risk Level |
| AAA |
+0.5-1% |
Low |
| AA+ |
+1-1.5% |
Low-moderate |
| AA |
+1.5-2% |
Moderate |
| A |
+2-2.5% |
Moderate-high |
| Below A |
+2.5%+ |
High (avoid) |
Is 1-2% Extra Worth It?
₹10 L for 5 years:
| FD Type |
Rate |
Maturity |
Extra Earned |
| Bank FD (SBI) |
6.50% |
₹13.70 L |
Baseline |
| AAA Corporate |
7.50% |
₹14.36 L |
+₹66,000 |
| AA Corporate |
8.00% |
₹14.69 L |
+₹99,000 |
| A rated |
8.50% |
₹15.04 L |
+₹1,34,000 |
Question: Is ₹66K-1.34L extra worth the default risk?
Corporate FD Risks
1. Credit/Default Risk
| Event |
Impact |
| Company defaults |
Partial or total loss of principal |
| Company restructures |
Delayed payments, reduced returns |
| Company downgrades |
FD value falls if tradeable |
Recent defaults:
- IL&FS (2018): Investors lost money
- DHFL (2019): Delayed payments, haircuts
- Several small NBFCs: Complete defaults
2. No Deposit Insurance
| Bank FD |
Corporate FD |
| ₹5 L insured by DICGC |
Zero insurance |
| Bank failure = covered |
Company failure = loss |
3. Liquidity Risk
| Feature |
Bank FD |
Corporate FD |
| Premature withdrawal |
Usually allowed (penalty) |
May not be allowed |
| Loan against FD |
Easy |
Limited/not available |
| Transfer |
Not applicable |
Usually not possible |
4. Rating Downgrade Risk
| Scenario |
Impact |
| AA+ to AA |
Increased risk perception |
| AA to A |
Significant concern |
| Investment grade to junk |
Possible default |
Companies can be downgraded during your FD tenure.
How to Evaluate Corporate FDs
Step 1: Check Credit Rating
| Action |
Source |
| Look up current rating |
Company website, rating agency sites |
| Check rating history |
Has it been downgraded? |
| Multiple agency ratings |
Cross-verify with 2-3 agencies |
Rule: Only invest in AA- or higher rated corporate FDs.
Step 2: Analyze the Company
| Factor |
What to Check |
| Business stability |
How long in operation? Consistent profits? |
| Debt levels |
Debt-to-equity ratio |
| Parent company |
Strong parent = better support |
| Asset quality |
For NBFCs, check NPAs |
| Liquidity |
Can they pay short-term obligations? |
Step 3: Understand Terms
| Term |
Check |
| Minimum investment |
Usually ₹10,000-25,000 |
| Tenure options |
Match your needs |
| Premature withdrawal |
Is it allowed? What penalty? |
| Interest payout |
Cumulative or regular options |
Step 4: Diversify
| Wrong Approach |
Right Approach |
| ₹20 L in one corporate FD |
₹5 L each in 4 different FDs |
| All in corporate FDs |
Mix of bank FDs and corporate FDs |
Never put more than 10-15% of FD portfolio in one company.
Safe Corporate FD Allocation
Conservative Approach
| Allocation |
Investment |
| 70% |
Bank FDs (SBI, HDFC Bank, etc.) |
| 20% |
AAA-rated corporate FDs |
| 10% |
AA+ rated corporate FDs |
Moderate Approach
| Allocation |
Investment |
| 50% |
Bank FDs |
| 30% |
AAA-rated corporate FDs |
| 20% |
AA/AA+ rated corporate FDs |
Aggressive (Not Recommended)
| Allocation |
Investment |
| 30% |
Bank FDs |
| 40% |
AAA corporate FDs |
| 30% |
AA- and above corporate FDs |
Warning: Even "aggressive" shouldn't include anything below AA-.
Red Flags to Watch
Immediate Warning Signs
| Red Flag |
Action |
| Rating below A |
Avoid completely |
| No rating |
Avoid completely |
| Unusually high rates (3%+ above bank FD) |
Too good to be true |
| Unknown company |
Extensive research needed |
| Aggressive marketing |
Be skeptical |
During Your Investment
| Warning Sign |
Action |
| Rating downgrade |
Monitor closely, consider not renewing |
| Negative news |
Research, assess impact |
| Interest payment delay |
Red alert, contact company |
| Company leadership changes |
Monitor for stability |
Tax Treatment
Same as Bank FDs
| Aspect |
Treatment |
| TDS |
10% if interest > ₹5,000/year (different from bank FD threshold of ₹40,000) |
| Tax rate |
Added to income, taxed at slab rate |
| Form 15G/15H |
Submit for no TDS (if eligible) |
Note: Corporate FD interest threshold for TDS (₹5,000) is lower than bank FD (₹40,000).
Alternatives to Corporate FDs
For Higher Returns with Similar Risk
| Option |
Returns |
Risk |
Liquidity |
| Debt mutual funds |
7-9% |
Low-moderate |
High |
| Corporate bonds |
8-10% |
Moderate |
Low |
| Government bonds |
7-8% |
Very low |
Moderate |
| RBI Floating Rate Bonds |
8%+ |
Zero |
Low |
Debt Mutual Funds vs Corporate FDs
| Factor |
Corporate FD |
Debt Fund |
| Returns |
7-9% fixed |
7-9% variable |
| Liquidity |
Low |
High |
| Diversification |
Single company |
Multiple issuers |
| Tax efficiency |
Slab rate |
Slab rate (same now) |
| Default risk |
Concentrated |
Spread across holdings |
For most investors: Debt mutual funds offer better risk-adjusted returns with higher liquidity.
Who Should Invest in Corporate FDs?
Good Fit
| Profile |
Reason |
| Conservative investors wanting slightly higher returns |
Comfortable with AA+ and above |
| Those with large FD portfolios |
Can afford to diversify |
| Retirees who understand the risks |
Regular income with monitoring |
Poor Fit
| Profile |
Reason |
| Emergency fund |
Need liquidity and safety |
| First-time investors |
Start with bank FDs |
| Those who can't monitor |
Ratings change |
| Risk-averse investors |
Stick to bank FDs |
Corporate FD Checklist
Before Investing
| Check |
Status |
| Credit rating AA- or higher |
☐ |
| Rating stable (no recent downgrade) |
☐ |
| Company in business 5+ years |
☐ |
| Profitable track record |
☐ |
| Not more than 10-15% of FD portfolio |
☐ |
| Understood premature withdrawal terms |
☐ |
| Verified from official sources |
☐ |
During Investment
| Action |
Frequency |
| Check rating updates |
Quarterly |
| Monitor company news |
Monthly |
| Verify interest payments |
As per schedule |
| Review on maturity |
Decide renewal |
Conclusion
| Factor |
Recommendation |
| Rating requirement |
AA- minimum, prefer AAA/AA+ |
| Allocation |
Max 20-30% of FD portfolio |
| Diversification |
No more than 10-15% per company |
| Monitoring |
Quarterly rating checks |
| Alternatives |
Consider debt mutual funds |
The bottom line:
- Corporate FDs offer 1-2% extra return, but no deposit insurance
- Only invest in highly-rated companies (AA- and above)
- Diversify across multiple issuers
- Monitor ratings throughout the tenure
- For most investors, debt mutual funds may be better
The extra 1-2% isn't worth it if you lose sleep—or worse, your principal.
Compare FD returns: Use our FD Calculator to calculate maturity value for different FD options.
