Nowadays, there are several investment options available to the investor. There is widespread awareness about key investment types, their risk factors, liquidity and tax implications among investors. Still, many investors need more details to make an informed decision. One such investment is Fixed Deposit (FD) offered by various NBFCs (Non-Banking Financial Companies). They usually offer higher FD interest rates than banks, but every NBFCs might not be secure and may default in the repayments of the invested money. Due to this reason, various credit rating companies evaluate the performance of the company and rank them accordingly.  It is necessary to conduct more due diligence while investing your money with NBFC deposits.

Fixed Deposits in Banks and NBFCs Are Not the Same

When you open a fixed deposit with nationalized banks, your money is perceived most secured as they are invested in government-owned banks. Up to INR 1 Lakhs, fixed deposit is secured with insurance from the government agency called DICGC (Deposit and Insurance and Credit Guarantee Corporation). However, beyond INR 1 Lakhs, no such protection is applied even in nationalized banks. Your money is subjected to the credit quality of the banks. However, when you invest in NBFCs, they usually go for credit ratings from independent agencies, so that trust and confidence could be build up among the investors.

Fixed Deposit Type by Rating Standard

To collect public deposits, NBFCs have to get their companies and deposit schemes rated through reputed and independent agencies like CRISIL and ICRA. Such agencies conduct a detailed and in-depth audit of financial statements and the overall business of the financial institutions. Based on the findings of the audits, the rating agency awards certain ratings to show creditworthiness of the financial institutions. For example, CRISIL awards FAAA rating when it finds the NBFC has a very strong possibility for the timely return of the principal and interest.

The equivalent rating given by ICRA is MAAA that indicates the highest credit quality of the investment. After AAA, the other ratings are AA, A, B, C and D. As you move from AAA to D, the credit quality deteriorates. The investors seeking the highest safety of their deposit must check ratings by CRISIL and ICRA both, and ensure FAAA and MAAA rating respectively. For example, Fixed Deposits offered by Bajaj Finance are rated FAAA and MAAA by both the rating agencies.

Cumulative and Non-Cumulative Fixed Deposits

Another important type of Fixed Deposit is based on interest payment frequency. Some investors want to grow their principal over the years, while others want to use the same to avail regular income. Various NBFCs offer both types of FDs based on the need of the investors.

The cumulative deposits offered by NBFCs pays the interest amount at maturity. The interest is re-invested in the principal amount. Hence your overall financial portfolio has an opportunity to grow cumulatively by the power of compounding.

On the other hand, in certain circumstances, you need regular income instead of growth. In such a situation, you can opt for non-cumulative Fixed Deposit of NBFCs. You have an option to avail the interest amount every month, every quarter, half-yearly or yearly. Usually, non-cumulative Fixed Deposit offers a slightly lower interest rate as compared to the cumulative Fixed Deposit. You can check the exact amount of interest by online FD interest Calculator.

Special Fixed Deposits

Based on market needs and to fulfill socio-economic obligations, banks and financial institutions float the special Fixed Deposits from time to time. For example, senior citizen Fixed Deposit fetches a higher rate of interest as compared to regular fixed deposit. Moreover, many special tenor deposits give you better interest than regular tenor interest rates. Instead of investing for 12 months, you can choose to invest for 15 months, but the rate of interest will be higher, allowing you better earning an opportunity with nearly equal liquidity. Before deciding on specific FD, you can explore such options to avail better return on your investment.

Make a Balanced Decision

If you rely on bank Fixed Deposit, you have to forgo a higher rate of interest for the safety that is equally available from high rated NBFCs. If you wish for high-interest rates for your investments, you must consider investing in financial companies that have at least an AA accreditation. Any ranking below that will reflect high possibilities of defaulting in repayment of the invested money.


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