Corporate Fixed Deposit
Also written Company Fixed Deposit · Corporate FD
A fixed-term deposit placed with a company, financial institution or NBFC rather than a bank, under Section 76 of the Companies Act — unsecured, leaving a defaulting company's depositor nothing to recover against.
In plain language
Not every fixed deposit sits with a bank. An investor can place money directly with a company, or with a financial institution or NBFC, for a fixed term at an agreed rate. The workbook calls this a Company Fixed Deposit, commonly known as a Corporate Fixed Deposit.
The crucial difference from a bank fixed deposit is what stands behind it if things go wrong. A bank fixed deposit carries deposit insurance up to a limit. A corporate fixed deposit carries nothing — it is entirely unsecured.
How it works
Corporate fixed deposits mobilised by companies are governed by Section 76 of the Companies Act, 2013. Financial institutions and Non-Banking Finance Companies (NBFCs) also accept such deposits under their own regulatory framework.
The defining risk feature the workbook states plainly: these deposits are unsecured — if the company defaults, the investor has no document to sell to recover the capital, unlike a secured debenture holder who has a claim against specific assets. This is what makes a corporate fixed deposit a risky investment option, despite often offering a higher rate than a bank FD to compensate for that risk.
A worked example
Mrs. Iyer places Rs 5,00,000 in a 3-year corporate fixed deposit with a mid-sized NBFC, drawn by a rate of 8.75%, well above the 6.5% her bank offers on a comparable tenor.
Two years in, the NBFC defaults on its obligations. Because the deposit is unsecured under Section 76, Mrs. Iyer has no charge over any company asset to enforce, unlike a secured debenture holder in the same company who could stake a claim to specific collateral. Her only recourse is through the NBFC's general insolvency process, alongside every other unsecured creditor — and the extra 2.25% she earned in the two years before default is no compensation at all for a capital loss on the remaining Rs 5,00,000.
Why NISM asks about it
Chapter 4, section 4.8 (Corporate Fixed Deposits). Expect the Section 76 citation and the unsecured nature of the deposit as the two facts most likely to be tested — this is a short section but a clean, examinable one.
Common exam traps
- A corporate fixed deposit is unsecured by definition — do not assume a higher rate implies a bank-style safety net.
- This is not the same product as a bank fixed deposit, which carries deposit insurance up to a limit and a different regulatory regime entirely.
- Section 76 of the Companies Act, 2013 governs mobilisation of these deposits by companies — NBFCs and financial institutions accepting them sit under their own separate framework, not Section 76 itself.
Check yourself
1.What is a corporate fixed deposit, and why does the workbook call it risky?
- a)A deposit with a bank, insured up to Rs. 5 lakh
- b)A deposit placed with a company for a fixed term at a prescribed rate of interest, governed by section 76 of the Companies Act, 2013 — risky because such deposits are unsecured, so on default the investor cannot sell the documents to recover his capital
- c)A secured debenture with a charge on company assets
- d)A government-guaranteed instrument
Show the answer
Answer: (b) A deposit placed with a company for a fixed term at a prescribed rate of interest, governed by section 76 of the Companies Act, 2013 — risky because such deposits are unsecured, so on default the investor cannot sell the documents to recover his capital
The deposit placed by investors with companies for a fixed term carrying a prescribed rate of interest is called Company Fixed Deposit. Financial institutions and Non-Banking Finance Companies (NBFCs) also accept such deposits.
Deposits thus mobilized, are governed by the Companies Act, 2013 under Section 76.
And the risk: these deposits are unsecured, i.e., if the company defaults, the investor cannot sell the documents to recover his capital, thus making them a risky investment option.
Unsecured is the operative word — which disposes of option C. Compare a secured debenture, where the lender has a right against the company's assets if it fails to pay.
Option A confuses it with a bank deposit. These are deposits with companies, not banks, and no insurance is mentioned anywhere in the chapter.
Option D invents a guarantee. Nothing stands behind the promise but the company itself — which is precisely the point the workbook makes.
Why it looks safe and is not. A fixed term and a prescribed rate of interest resemble a bank deposit, and the return is predictable so long as the company pays. The difference appears only on default, when there is nothing to fall back on.
Which is why the ordinary discipline of debt investing applies — assessing the borrower's ability and willingness to service the obligation, the exercise that a credit rating exists to perform.
Note who may accept such deposits: companies, financial institutions and Non-Banking Finance Companies (NBFCs) alike.
**It sits in this chapter as one of the several instruments that arise when the basic features of these instruments can be modified to suit the specific requirements of the borrowers or lenders.
Where this is taught
Free preparation for NISM Series II-ARelated terms
- Credit ratingAn opinion on how likely a borrower is to service an instrument on time, reduced to a symbol by a SEBI-registered rating agency — and reviewed continuously, not fixed for the life of the bond.
- Unrated bondsBonds carrying no current, valid rating from an external credit rating agency — more illiquid than rated bonds, and consequently priced to offer a higher yield.
- Fixed DepositMoney placed with a bank for a fixed term at an agreed rate of interest. Safe and simple, but the interest is taxable, and TDS applies once interest crosses a stipulated amount.