What are company fixed deposits?

Let us understand what are company fixed deposits.

1. CFDs are usually issued by NBFCs, housing companies and financial institutions, though some manufacturing companies also raise deposits from the public.

2. CFDs are unsecured borrowings of a company and there is no recourse against the assets of the company in case of a default.


3. CFDs offer interest rates higher than bank deposits, since they carry default risk.

4. CFDs have to be compulsorily credit-rated. The higher the interest rate offered, the lower the credit rating, and the higher the default risk.

5. Interest on CFDs may be paid monthly, quarterly, halfyearly or annually. Interest may also be reinvested and paid out with the principal on maturity.

Content courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.