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Home CURRENT AFFAIRS BUSINESS Avoiding Common Pitfalls! How to Invest Wisely in Corporate Fixed Deposits

Avoiding Common Pitfalls! How to Invest Wisely in Corporate Fixed Deposits

Advantages and possible risks associated with investing in corporate fixed deposits (FDs). Discover how to make wise investment choices.

Corporate Fixed Deposits

Corporate Fixed Deposits: As savings options, fixed deposits (FDs) offer higher interest rates than standard savings accounts. Since the investor makes a one-time investment and receives the redemption funds after a predetermined duration, these products are also known as term deposits. When redeeming, the investor can choose to receive the interest in a lump sum or at regular periods.

Understanding Corporate Fixed Deposits

Corporate fixed deposits (FDs) are those provided by non-banking financial firms (NBFCs) and other corporate organisations. Corporate FDs have a somewhat greater interest rate than bank FDs, although the maximum duration permitted for the former is smaller. Purchasing a corporate FD is a great way to invest since it gives you the benefit of assured returns at rates that are marginally higher than bank FDs.

The Risk of Careless Investment

Nonetheless, it is not a good idea to invest money in a corporate FD carelessly or on the basis of rumours. Here is a summary of some typical errors people make along with advice on how to avoid them. A lot of people begin investing carelessly. Without conducting their due diligence, they stumble onto an option and invest in it on the recommendation of a friend. After you’ve made a list of your financial objectives, you should plan your investments. Your investments will then completely leverage your savings. Otherwise, it could turn into a hit-or-miss situation where, in the event that bad things happen, your savings might not be enough to meet your objectives.

Clarifying Financial Objectives

Once your financial objectives are clear, research the different corporate FDs available on the market and evaluate them based on factors like interest rates, tenure, and other factors before deciding on one. Additionally, read books or investment manuals to extend your perspective and increase your understanding. If you invest in a corporate FD without considering its features and suitability, you can end up with a less-than-ideal choice.

Understanding Credit Ratings for Corporate FDs

Take note of the ratings as you’re researching. Company fixed deposits are rated by leading credit rating agencies in India, such as CARE, ICRA, and CRISIL. Based on the degree of risk, these ratings assist you in reaching a more knowledgeable conclusion. Even if lower-rated or unrated corporates offer high interest rates, avoid them at all costs as they may be highly risky.

Importance of Tenure Selection

If you cancel your FDs before the stipulated period, the company will not be able to use the cash, therefore you will forfeit some of the interest and might even be penalised. As a result, pick the tenor carefully. Consider how much money you will need in the near future and select a tenure that works for you. Make plans for health insurance as well, as this will reduce the likelihood of unexpected financial difficulties. The penalty for prematurely shutting your corporate FD will offset any benefits you may be getting from moving to more alluring choices. It is therefore advised to hold onto your FD investment until the conclusion of the period.

Understanding the Impact of Inflation

Money loses value over time because to inflation, therefore depending only on an FD’s interest rate will not be enough to keep up with inflation. We must take inflation into consideration in order to fight this. Therefore, it makes sense to lock in your money at the highest possible interest rate.

The Temptation of High Interest Rates

Investors may be enticed to allocate a significant amount of their money to corporate fixed deposits due to the comparatively higher interest rate. Because the method might not afford you the advantages of other loan and equity vehicles, you might not be able to leverage your savings to their fullest potential. Building a well-diversified investment portfolio would be a wiser course of action, since several assets can offer investors several advantages that outweigh the drawbacks of individual instruments.

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