Corporate Fixed Deposits - FD with Higher Interest Rates - YouTube

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Namaskar, my name is Mukul and you are welcome to Asset Yogi.

Friends, in this video we will be talking about Fixed Deposits.

But we will not talk about bank FD's, about which generally people know.

In this video, we will talk about corporate FD's.

Corporate FD, as you can understand by the name.

These are issued by corporates that is some companies or housing finance companies.

There you will get interest rates more than bank FD's.

But many of you will ask that is these FD's are safe?

Or how much interest rate we will get?

And if we have to invest in these FD's then how to select the right products?

So I will try to answer all these questions in this video.

With that what are the advantages of corporate FD's and what are their limitations?

We will cover all these points also so must stay tuned to this video.

Let us first understand, what are corporate FD's?

See when any company needs to raise the funds then it has two options.

The first is that they can go to the bank and take a loan where they have to pay the interest.

And the second option company have is that they can directly go to the customers

and can raise funds from them.

So customers give money to the company in return, the company promises an interest rate

and we call this corporate FD.

Now it's an obvious thing that if the company

is raising funds directly from the customers so they have to offer more interest rates than the bank.

And they will try to get benefited from the interest rate that they will have to pay in the bank.

So in between them, you get an interest rate as a customer.

Now we will talk about the advantages and limitations of the corporate FD's.

If I talk about the advantages then the first is that you will get higher interest rates here.

You can expect that you will get 1-2% more interest rates in any good company if you compare with bank FD's.

So let's suppose if the rate of bank FD's in today's date is going near about 7-7.5%,

so you can expect that any good company will give you an interest rate of 8-8.5% in FD's.

And definitely, if we talk of senior citizens, like in bank FD's there is a little bit higher interest rate,

here also for senior citizens, some near about 0.25% is higher in interest rates.

In fact, in this video, we have partnered with PNB Housing

which provides you up to an interest rate of 8.5%.

We will use this as an example in last to understand the product feature and its benefits.

But here a question comes, if returns are more so is our risk is also more?

See every product has a risk if you invest in mutual funds then there is also a risk.

If you invest in Provident Fund there also is a risk your money gets blocked.

If we talk about mutual funds then there your returns depends on your market.

So we can say that every product has a unique proposition and has a unique use.

Now you will say that if we are getting high returns then risks will also be high.

See every product has a risk.

If we talk about bank FD's whom people consider the safest.

So it is not like that, it is safe if we talk about all your deposits that happen in the bank.

Maximum insurance of that is Rs 1 lacs, including all your savings accounts and all your deposits.

So it is not like that if any bank or nay financials bankrupt then your money is 100% safe.

Every product has unique risks.

Same way if you invest in mutual funds there comes the risk of the market, if you put money in a provident fund,

So there comes the issue of liquidity, you can't withdraw your money suddenly.

So this is a product you should definitely know its risk.

The company should have strong fundamentals.

That is you can see its track record of the past 10-15 years, brand value and its financials.

And if as a common man if you can't do these works so you can see the credit ratings.

a lot of agencies, rating agencies, are there which give ratings to every product.

So you can check like these CRISIL, ICRA or CARE ratings of any product, you will get an idea of

How has been their record of giving interest in past?

So let me tell you that here the top rating is AAA.

Below that AA rating comes.

Now we will talk about it in little more detail.

So it is the first advantage, that we have talked about that here you get a little more interest rate than the bank.

And with that what are the risks associated and how can we mitigate them?

Talked about it.

Now we will talk about the second advantage.

You will get fixed returns in corporate FD's.

That is if you once invested money whatever the interest rate is promised to you, you will get that till maturity.

If the rates get revised too,

These rates can definitely get revised, banks can revise them every 3-6 months.

But the interest rate that is promised to you will not be changed in between.

If anyone makes new FD's, then those rates are for them.

Your rate will be the same till maturity.

And if we talk about the third advantage then here again we will talk about fixed returns.

Let's say if you compare it with mutual funds, mutual funds depends on the market.

So you will remember I did a video before in which I compared all the investments NPS, provident funds, FD's

and compared mutual funds too.

Every product has a unique proposition, so I am not saying that the rest products are bad or you don't have to invest in them.

Definitely, you have to divide your portfolio and see what are your requirements.

You will care that when we talk about FD's so it gives a good proposition from short-term to mid-term.

Because some of your goals are not market dependent.

Suppose in 2-3 years you need money for the education of your child.

Or he is going to marry or you want to buy a house.

You want that money yours give fixed returns and don't depend on the market.

Maybe in today's date when you entered in mutual funds, the market is going on its peak

and maybe after 2-3 years, the market gets a little bit down.

So maybe you don't want to withdraw money from there, son in that fixed returns comes out to be a good proposition.

And here if I talk about the fourth advantage so here you will also get liquidity high.

That is, suppose even if you got FD for 3-4 years.

And by chance, you are required within 2 years so you can definitely break the FD.

A little bit of penalty will be levied, the interest penalty is levied.

Generally, we see that about 1% penalty is levied, 1% is subtracted from your interest rate.

But,

in an emergency case, you can definitely withdraw that money, here liquidity is ensured to you.

So it was all our advantages but with that, we also have to talk about the limitations.

So the first limitation that comes here is these FD's are taxable like your normal bank FD's are taxable.

These corporate FD's also, whatever your income tax slab rate is made, if you come under 20% slab rate,

So on your interest and here tax will only be levied on your interest, your interest will be reduced by 20%.

So how many types of corporate FD are there?

So here they are of two main types, like the bank FD's.

One is your cumulative FD and the other is a non-cumulative FD.

In cumulative FD, whatever amount you invest, after maturity, you will get that together.

Whatever your interest is, gets compound.

That is you get interested on interest also.

And because of this compounding effect, all your wealth grows we invest whether in any investments.

So here in FD, if we talk about cumulative FD then you get benefitted from compounding.

If we talk about an example, suppose you put 10 lacs in a cumulative FD, where you were getting an interest rate of 8.4%.

Now this 8.4% is fixed.

For 5 years, 10 years for whatever time you have invested your money, your interest rate will be 8.4%.

So if we talk about this 10 lacs so according to 8.4%, it will be increased to Rs 12,85,000 in the 3 years.

In 5 years it will be around 15,20,000 and in 10 years it will be around Rs 23,00,900.

And when do you have your cumulative FD?

If you have to meet any goal that is you need to do any goal-based investing

like you want to fund the education of your child or want to marry.

Or want to buy any house or a vehicle after some time.

So then you put your money in cumulative FD, after that time you will get the maturity amount

and you will also get compounding's effect.

On the second side, we have our non-cumulative FD.

In non-cumulative FD whatever your interest is,

whether you can take its monthly payments or can take quarterly payments or can take annual payments.

You will get different interest rates for all these payments wherever you are doing your FD.

But remember that here you will not get a compounding effect.

Whatever your amount is, because you are getting interested every month or every quarter.

Your amount will remain the same.

If you have created FD of let's say of 5 years, so after 5 years,

if you have invested 20 lacs, then you will get back that amount as it is.

Here you can put for whatever time you want but you know that final amount that you will get will remain same.

But there will be a recurring payment.

So here what are the benefits of non-cumulative FD's?

Like if someone has to do retirement planning, nee money every month.

so for him, it is very beneficial.

For example, if you invested 20 lacs and you are getting interests of 8.4%,

then your monthly payment that will come will be around RS 14,000.

So here I have covered all the points related to corporate FD's, now we will talk about one example more.

Maybe you all know about PNB Housing, which is a housing finance company.

One of their products is a fixed deposit, we will try to see some of its details.

And all the parameters that we saw, according to them what are the details here?

See here is the fixed deposit if you go to their website and go to the fixed deposit so you can check all the details.

Now here I have come to the page of interest rates where we are talking about money and interest rates.

Finally, how many returns we will get? we can check it here.

So see here you will get the different-different interest rate of cumulative and non-cumulative options.

In non-cumulative what are the interest rates for monthly, quarterly and annually?

With that, this interest rate is varying according to tenure.

From 12 months to 120 months that is you can do this FD from 1 year to 10 years.

You will see the return on investment that is how much interest rate you will get?

From 8.3% to maximum it is going up to 8.45%.

You can understand that if we talk about interest rate of FD of any bank so it is going between 7%-7.25% .

Here you are getting around 15-1.25% more from that.

And secondly, we talked that how we can mitigate our risk? We want to see how is the business?

Is it a strong business?

Definitely, here I can see a simple business,

raised money from you and it is a housing finance company.

Further, they gave in the form of a home loan where they earned a little higher interest rate.

And these are all secured loans and I think this is a simple business to understand.

And here your money should be relatively safe.

And if you don't want to do all these analyses on your own, so as we talked about earlier

we can see CRISIL ratings or ICRA ratings.

And how to see those ratings?

We talk about its once.

Here I have opened the page of CRISIL and here you can see that it is a credit rating scale.

You will find how they rate different types of products?

So you see here credit rating fixed deposit scale.

If you go there then you will see the FAAA rating is the highest rating of fixed deposit.

That is, this is giving the highest safety.

This rating indicates that the degree of safety regarding timely payment of interest and principal is very strong.

That means if any products get this rating so it has some track record,

which has given principal and interest always on time. The FD of PNB housing is also rated as FAAA.

If you want to do this FD then you will get doorsteps service.

You will get the link in the description below.

So I understand that in this video you have got an overview of the corporate FD.

And how you can earn a little more interest rate than the bank FD's.

With that how you can manage your risk?

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