Investing in a fixed deposit [FD] is one of the most effective ways of growing one’s money. Whether you are trying to grow your regular income or want to utilize your savings, FDs can help you to achieve that goal in a secure manner. Earlier, the investors only had the choice of bank FDs. Today, investors have more investment options due to the rise of Non-Banking Financial Companies [NBFCs].
An NBFC is registered under the Indian Companies Act, 1956. It provides various loan and investment options with FD being one of the most popular investment instruments.
Why to choose an NBFC FD
The core reason behind the increasing popularity of NBFCs is that they offer higher FD interest rates compared to the banks. As a risk-averse investor, you may have the thought to opt for a bank FD, as it is safer. However, you need to consider various other aspects before investing your hard-earned money. Here are a few aspects of NBFC FDs that shows why it is a better option compared to bank FDs
Interest rate
Different banks and NBFCs offer a variety of interest rates for their fixed deposits, but in general, the NBFC FDs have a higher return. The most popular banks in India offer an interest rate of 6.6 to 7% on the FDs. The senior citizens are offered up to 0.5% higher interest. When it comes to FDs in NBFCs, the interest rate offered on the FD is 8.3 to 9%, which is up to 0.10 to 0.25% higher for senior citizen investors.
Credit rating
The fixed deposit interest rates are not the only aspect that the investors consider before taking a risk with their money. When it comes to the bank FDs, the investors find it more trustworthy because banks are governed by the Reserve Bank of India [RBI]. Your investment is insured by the Deposit Insurance and Credit Guarantee Corporation.
However, an NBFC with a high credit rating can be equally trusted as it indicates how safe the company is. There are credit rating agencies that provide ratings to the NBFC FDs based on the risk factor regarding the business, finance, and the quality of the company’s management.
Before investing in an NBFC FD, it is important that you find out the credit rating of the company and learn about its business models. You will be able to make an informed investment decision after doing intensive research.
The option of premature withdrawal
You have the facility of premature withdrawal in the case of both bank FDs and NBFC FDs. However, one difference is that a few private banks do not allow premature withdrawals. On the other hand, NBFCs allow you to withdraw money before the end of the investment tenure. Even though some companies have a mandatory lock-in period, NBFCs score more as compared to banks as you can withdraw your investment in case of a financial emergency.
The premature withdrawal penalties vary from one NBFC to another. To avoid any penalty, you should only use the money that you can invest for a long period of time.
The minimum period of investment
The minimum investment tenure for an NBFC FD is higher compared to a bank FD, which increases the FD rates, and results in a higher return in the long run.
When investing in an NBFC FD, you must ensure that you know all the important facts so that you can invest your money in the most secure and profitable manner.