Bank FD vs Corporate FD, be sure to know these three risks before investing

 

Bank fix deposit (Bank FD) is a fairly common and most popular investment option in India. But due to the falling interest rates on bank FDs for the last few months, people are looking for an alternative so that they can get good returns. Experts recommend such investors to start investing in Corporate Fix Deposits (Corporate FD) with AAA rating. One thing investors should know here is that corporate fix deposits have a higher risk than bank FDs.

 

Corporate FDs with AAA ratings such as HDFC Ltd and ICICI Home Finance Ltd give one to two per cent higher returns than bank FDs. An investor must know the three risks before investing in a corporate FD. Let's know what they are.

 

Default risk

 

Corporate FDs outside bank FDs are unsecured. This investment product guarantees neither capital nor interest payment security. If the company faces a financial crisis, as an investor you may have to lose your money.

 

Return after tax

 

Interest on corporate FD adds to the investor's income and is taxed as per the income tax slab. For investors who fall in higher tax slabs, corporate FDs may not be attractive, as returns after-tax decrease.

 

Pre-mature withdrawal

 

Most company FDs come with a lock-in period of three months, during which the investor cannot withdraw. Even after completion of the lock-in period, pre-matured withdrawal means the closure of the entire FD. There is no facility of partial withdrawal here. In addition, an investor will lose some interest on withdrawals before the FD matures.