Bank fixed deposits (FD) are one of the safest contemporary investment options. FDs offer a fixed rate of return for a specific lock in period. Apart from banks, corporates also offer fixed deposits on similar lines, but these FDs offer relatively higher rate of return. Corporate FDs are for a maturity period of 1 to 3 years offering as high as 12% in some cases.
However, the customers should not be lured by high interest rates as the deciding factor. Since it is not mandatory for corporates (other than NBFC and housing finance cos.) to get their FDs rated from rating agencies, the choice becomes difficult for the consumer. But there are certain thumb rules while chosing the best out of these options. Firstly, the company should be making profit and paying out dividends over the past few years; secondly, amount of taxes paid out to government is also a vital factor, since the company can not tweak much with the numbers.
Another thing to note is to do a background check on company, that is the companies promoted by big industrial houses should be preferred. Companies with promoter group who have had history of default should be avoided. Also, a lower risk free return is always better than higher doubtful returns. It is therefore advised to invest in companies of repute or companies which have been mobilizing deposits from public for a long time.
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