Corporate Deposit Meaning:
A Corporate deposit is an interest bearing deposit bank product offered to corporate banking customers by banks and accredited financial institutions. Corporate deposit target customers can include large commercial companies, public institutions, government agencies and large non profits. It contrasts to retail deposits which are held by consumers and business deposits that are held by SMEs. Corporate banking clients may use this type of product as a cash management solution when managing the optimal mix of liquidity and returns of surplus funds as it may provide an investment stream.
Corporate Deposit Example:
More recently corporate deposit versus retail deposit offerings will likely be affected by the Basel iii liquidity rules, with the regulations giving a preference to ‘sticky money’, which is deposits that are more likely to be held by the banks on an ongoing basis such as retail term deposits, as they tend to roll them over when the deposits mature. However large corporate can have large cash reserves and which is another funding source for banks.
A common misconception is that company fixed deposits are not wise investment choices when the deposit rates offered by the banking institutions are “high”. On the contrary, wisely chosen company fixed deposit products should always have a place in an investor’s debt portfolio.
The reason for this is simple – interest rates should not be considered in isolation. Rather, they should be considered in relation to the prevailing inflation rate or the rate at which the rupee is losing value in the market. An astute investor will observe two things – one, whatever be the ongoing annual inflation rate is, the deposit rates offered by institutions are a notch (a couple of percentage points) lower than that and two, the average company deposit offers a slightly better rate than the bank fixed deposit for a comparable term. Putting the two together, an investor will always know that the company fixed deposit gives an interest rate that is closer to the current rate of inflation at a point in time compared to a similar bank FD product.
Of course, the key is, as in all things in life, moderation. The company deposits give a slightly higher interest rate because there is a slightly higher risk associated with them. The “credit risk” associated with a company fixed deposit should be factored into while making a decision on where to invest.
The simple thumb rules to keep in mind are the following:
1. Spread your investments – an investor has a choice between PSU banks, private banks and companies when it comes to deposit options. Simply, divide your deposit portfolio into three equal parts for these categories.
2. Choose your companies wisely – no un-rated companies regardless of how high a rate they offer, and preferably chose companies that are part of a larger group so the risk is mitigated. And finally,
3. Choose the company deposits for the part of the portfolio that has the shortest tenure – say 1-2 years.With this approach, an investor will have the potential to make a good risk-adjusted return from their deposit portfolio
Fixed Deposit aka term deposit is an instrument by which one can deposit his/her savings for a prescribed period of time with a bank. When the period of deposit elapses, the depositor is entitled to the interest on the deposited amount. In some cases, the rate of interest on fixed deposits can be as high as 9.5%!
How to do it?
All you got to do is deposit your savings in a bank account of your preference and watch your money grow over time. Do remember to check with multiple sources regarding the various options available. There are a wide range of fixed deposit products available to suit a wide range of investor preferences. So choose the one that matches closely with your investment goals.
The Bankers View:
For banks, fixed deposits (or term deposits) represent a loan arrangement. In simple terms, the money deposited through such investments shall earn a said amount as interest, as per the existing norms and guidelines as set by the banking regulatory authority. The rate of interest on your fixed deposit is determined by many factors such as the location of deposit, the duration for which the amount is deposited as also the currency involved for making the deposit.
The Investors Take:
For starters, a fixed deposit is not a normal deposit that you do at your bank and then withdraw it as and when you please. But, it is a deposit that cannot be withdrawn in the specified period. Generally, these types of deposits are made for duration of 5 years. During this time, the amount remains in your bank account and is prohibited to be withdrawn for any reason whatsoever. Non-profit organizations, corporate entities and individuals alike, who wish to keep aside a stipulated sum for a particular period of time, most often than not, find that such deposits are the easiest way in attaining their objective. The icing on the cake is their money will earn a rate of interest that is shielded by any fluctuations in the interest rates that governs other type of investments. Such deposits are a good (if not the best) way to gain a return on investment which is a tad higher than a conventional savings account.
Trust Deposits:
Deposits that are made "in the name of one person, as trustee for another" are branded as "trust deposits."
Trust deposits are made for three basic reasons:
- Pose for the disposition of a domain after demise sans the use of a will or administration,
- Hide from others info of financial standing, or
- Escalate deposits where a prescribed limit is set upon single deposits.
Lastly, fixed deposits offer investors a relatively safe avenue for parking their funds, albeit at the risk of earning a slightly lower return on investment. At the end of the day, it is up-to the individual investor to decide for themselves whether they wish to pursue a high return-high risk approach or a relatively lower but largely safe investment approach.
Types of Companies offering Fixed Deposits
- Financial Institutions
- Non-Banking Finance Companies (NBFCs).
- Manufacturing Companies
- Housing Finance Companies
- Government Companies
Features and Benefits
- Company Fixed Deposits offer comparatively higher returns than banks.
- Choose the best tenure for you from a wide range as per your convenience.
You can choose how frequently you want to receive your interest payments :-
- Maturity
- Yearly
- Half-yearly
- Quarterly
- Monthly
Company Fixed Deposits are non transferable that means there is no fear of FD receipt being stolen. In case it falls into wrong hands, it cannot be misused.
Premature encashment of deposit is available any time subject to payment of prescribed penalty.
Diversify Risk - The deposits should be spread over a large number of companies engaged in different industries. This way, youll be able to diversify your risk among various industries/companies.
Wide Choices- Many companies operating in the Company Deposit market. This will help you decide whether to renew or reshuffle the deposit.
Attractive rates as applicable from time to time.
GOI Bonds
8.0% taxable bonds
These Bonds are held in an account called Bond Ledger Account (BLA). Bond Ledger Accounts can be opened and operated with RBI designated Receiving Offices. StockHolding has been designated as one of the Receiving Offices by RBI for this purpose. Subscriptions for Savings Bonds can be submitted at any of our branches.
Savings Bonds being sovereign in nature are absolutely safe and an attractive investment option in the current volatile market situation.
The following categories can subscribe to Savings Bonds :
