Investments can play a vital part in shaping the future of a person, but it is important that you consider the investment and returns security before investing. Amateur investors consider fixed deposits as one of the best investment sources for secure returns, whereas with the reduction of interest rates on FDs for the banks, it is recommended that you consider investing in a company FD.
The banks have been the pioneer in offering fixed deposits, but with low-interest rates regulated by the Reserve Bank of India (RBI), they might not be a good option for investment. In Fixed Deposits, the interest availed on your deposited amount is counted as your earned profit, so if you invest in a bank FD, you might gain lower returns than expected.
In such a case, you can opt for a company Fixed Deposit. Company fixed deposits are offered by the Non-Banking Financial Companies (NBFCs), and they are not fully under the RBI regulations because RBI sets the base rate and else is set by the lender itself. They can formulate the interest rate on FD’s according to their own policies.
Unlike the banks which provide only a single type of interest rates on FDs, the company FDs offer two types of interest rates.
Cumulative: Under this, your interest returns get compounded on a yearly basis and can be withdrawn on the date of maturity.
Non-Cumulative: In this type of interest rate, your interest rate gets compounded on the monthly, quarterly and yearly basis and the interest amount can be withdrawn by the investor on yearly, half yearly and even monthly basis. This interest type is useful for the people who are in need of finances.
Benefits of a Company FD:
Since the company FDs are not regulated by the RBI, they offer high-interest rates than the banks. Apart from the interest rates, the NBFCs offer various other benefits on FDs.
1. lesser risks: When investing in FDs, the investors constantly fear the change in the interest rates due to the market fluctuations which might affect their returns. The NBFCs do not set the interest rates according to the market conditions which makes them less risky for investment than the banks.
2. Not dependent on the market fluctuations: NBFCs are funded by a private organisation and are not regulated by the RBI guidelines. The RBI sets the repo rate according to the changes in the economy. On the contrary, the NBFCs set their interest rates according to their policies irrespective of the economic conditions and market fluctuations in the country.
3. Different interest rates for different investors: The NBFCs offer different interest rates on FD for different investors. The NBFCs offer the basic interest rate of 7.85 percent for a new investor and offer 8.10 percent for a senior citizen. Some NBFCs offer 0.10 percent additional interest rates for renewal of Fixed Deposits.
If you are budding investor looking to gain for maximum returns from your fixed deposits, it is necessary that you keep the interest rates as your priority while investing. It is also important that you invest in a reliable institution that offers security for your money as well as secure returns.