Fixed deposits: Company FDs offer rates up to 9.1%, outpacing bank deposits but with higher risks

Company FDs are term deposits issued by non-banking financial companies (NBFCs) and manufacturing firms to raise capital. These deposits typically offer interest rates that are 1-3 percentage points higher than those offered by banks, with returns currently ranging from 6.6% to 9.1% per annum.

Among the top-paying issuers, Muthoot Capital offers rates between 7.9% and 9.1%, making it the highest-yielding option among major company FDs. Shriram Finance offers up to 7.6%, while Housing and Urban Development Corporation (HUDCO) provides rates of up to 7.25%.

By comparison, scheduled banks currently offer FD rates ranging from 2.5% to 8.1% for tenures between seven days and 10 years. Small finance banks dominate the high-interest segment, with Suryoday Small Finance Bank and Utkarsh Small Finance Bank offering rates of up to 8.1%. Jana Small Finance Bank offers up to 7.77%, while Equitas and ESAF Small Finance Banks provide rates of up to 7.75%.

Among private lenders, DCB Bank and Unity Small Finance Bank offer rates of 7.5%, while AU Small Finance Bank provides up to 7.4%. Bandhan Bank and Yes Bank offer rates of up to 7.25%, and RBL Bank offers up to 7.2%.

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Despite their attractive returns, company FDs carry higher risks than bank deposits. Unlike bank FDs, which are insured up to Rs 5 lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC), company deposits have no insurance cover and are unsecured. In the event of a default, investors risk losing their principal.

Experts advise investors to focus on highly rated issuers. Agencies such as CRISIL and ICRA assign ratings, with 'AAA' or 'FAAA' denoting the highest level of safety.

Company FDs also offer cumulative and non-cumulative payout options and generally permit premature withdrawals after a three-month lock-in period, although penalties may apply.

Financial planners say the higher returns offered by company FDs can be attractive, but investors should balance the additional yield against the increased credit risk and diversify their investments accordingly.

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