The Reserve Bank of India (RBI) defines a Non-Banking Financial Company (NBFC) as an entity offering individual loans, advances, and deposit plans. The NBFC is registered under the Companies Act of 1956 and comes under the regulation of the RBI.
NBFCs offer individuals a range of financial products, including personal loans, business loans, gold loans, fixed deposits and more. For fixed deposits, NBFCs provide attractive returns on investment, making them quite popular among investors.
However, before you invest in a fixed deposit plan offered by an NBFC, you should understand all the aspects of the same. So, here's a complete guide to the NBFC fixed deposit plan.
Key Highlights
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Types of Fixed Deposits Offered
NBFCs usually offer two types of fixed deposit plans. They are as follows:
| Cumulative Fixed Deposits | Non-Cumulative Fixed Deposit |
| Cumulative fixed deposits are the ones that accumulate interest over the deposit tenure. | Unlike a cumulative fixed deposit plan, a non-cumulative plan does not accumulate interest income over the investment period. |
| The interest earned is reinvested with the deposited amount. The reinvested interest earns future interest, based on compounding, to increase your corpus. | The interest earned is paid out at regular intervals. |
| The deposited amount and the interest accumulated are paid in a lump sum on maturity. | On maturity, you get the invested amount back in a lump sum. |
Did You Know?
The non-cumulative FD plan can be a good way to generate a regular source of income for retirees. They can invest their retirement fund in the non-cumulative FD and enjoy guaranteed income payouts over the chosen investment tenure.
Features of NBFC Fixed Deposits
NBFC fixed deposits have some salient features, which are discussed below:
Interest Rate
NBFCs usually offer attractive fixed deposit interest rates, allowing depositors to grow their investments effectively. Moreover, senior citizens and female investors can also enjoy preferential interest rates, which are higher for such depositors.
For instance, Shriram Finance offers interest rates up to 9.40%* p.a. on its fixed deposit plans. This includes a 0.50%*p.a. special interest rate for senior citizens and a 0.10%*p.a. special interest rate for women depositors.
Investment Tenure
A flexible investment tenure is offered so depositors can easily plan for their short- and long-term financial goals. The investment tenure usually starts from 12 months and goes up to 60 months or more, depending on the NBFC you choose to invest in. Shriram Finance offers a tenure ranging from 12 months to 60 months, and you can choose from the different tenures based on your financial goals and investment horizon.
Credit Rating
NBFC fixed deposits carry a credit rating, which leading credit rating bureaus assign. This rating shows the safety of the deposit, and you must check the credit ratings before investing in such deposits. A high credit rating means the deposit is safe for investment.
Shriram Finance fixed deposits are rated [ICRA] AA+ (Stable)" by ICRA and "IND AA+/Stable" by India Ratings and Research. These ratings bolster trust and make the deposits safe for investors.
Easy to Invest
NBFCs make investing in FDs a simple affair. You can invest online in simple steps as the eligibility criteria are simple and minimal documents are required. Some NBFCs also have mobile applications that you can download on your smartphone and then invest in the fixed deposit plan from the app on the go.
Difference Between Fixed Deposits Offered by Banks and NBFCs
Fixed deposits offered by NBFCs are quite different from those offered by banks. While both plans offer guaranteed returns and flexible tenures, the difference lies in the other aspects of the plans. Have a look at what these differences are
Investment Tenure
Banks offer fixed deposits with a wider range of investment tenure. It usually starts from 7 days and goes up to 10 years.
Regarding NBFC fixed deposits, the tenure usually starts from 12 months. It goes up to 60 months with most companies.
Security of Fixed Deposits
The Deposit Insurance and Credit Guarantee Corporation (DICGC) provides insurance coverage on bank fixed deposits. Deposits up to ₹5 lakhs are secured. If the bank winds up or fails to repay the deposit on maturity, the DICGC will pay back your deposited amount up to ₹5 lakhs. This makes bank fixed deposits secure and safe for investors.
Shriram Unnati FD is Rated "[ICRA]AA+ (Stable)" by ICRA and "IND AA+/Stable" by India Ratings and Research, indicating a high degree of safety and security and it is one of the safest investment option with attractive interest rates.
Credit Rating
Bank fixed deposits do not carry any credit rating. They are not rated by credit agencies because they are secured by the DICGC. Since there's limited default risk, no credit rating is required.
Since NBFC FDs are not insured by the DICGC, they are rated by credit rating agencies. The agencies rate the deposits to show investors whether the deposit is safe. Deposits with a higher credit rating are considered safe to invest in. For instance, Shriram Finance fixed deposits are rated [ICRA]AA+ (Stable)" by ICRA and "IND AA+/Stable" by India Ratings and Research, which show a high credit rating indicating high degree of safety.
Interest Rates
NBFCs offer a higher interest rate on their fixed deposit plans than banks. This is done to attract customers and compensate for the default risk that depositors face without the security offered by DICGC.
How do you Invest in the NBFC Fixed Deposit?
There are two main ways of investing in an NBFC fixed deposit plan. They are as follows:
Offline Mode
You can visit the nearest branch of the NBFC and open the FD account offline. You must fill out the physical account opening form, submit the relevant documents and make the deposit.
Online Mode
The online mode is much easier and more convenient and helps you to open the NBFC fixed deposit account instantly. For the online mode, visit the official website of the NBFC or download its mobile application and complete the process.
The Bottom Line
You can choose NBFC fixed deposits and grow your savings over time. With flexible tenures and the facility of premature withdrawals, NBFC fixed deposits offer a flexible investment avenue.
Shriram Finance Fixed Deposits are highly rated plans which offer tenures ranging from 12 to 60 months. With interest rates as high as 9.40%*p.a., you can enjoy attractive returns and grow wealth.
FAQs
1. What is an NBFC fixed deposit, and how does it differ from a bank fixed deposit?
An NBFC fixed deposit is issued by a financial company engaged in lending and accepting deposits. They carry a higher interest rate and offer flexible investment tenures.
NBFC FDs are different from bank FDs in different aspects. Here are some of them
- NBFC fixed deposits offer higher interest rates than banks.
- The investment tenure differs between NBFCs and bank FDs. While banks allow deposits ranging from 7 days to 10 years, NBFCs offer tenures from 12 months to up to 60 months.
- Bank FDs are secured for up to ₹5 lakhs, while NBFC FDs do not enjoy this security.
- NBFC FDs are rated by authorised credit rating agencies to establish their safety. Bank FDs do not carry such ratings.
2. What is the minimum and maximum tenure for NBFC fixed deposits with Shriram Finance?
Shriram Finance offers fixed deposit plans with tenures starting from 12 months and going up to 60 months.
3. How can I open an NBFC fixed deposit account with Shriram Finance?
You can open an NBFC fixed deposit account with Shriram Finance online through the company's website or its branches. For the online mode, visit and apply online.
4. Are NBFC fixed deposits safe and secure for investments?
If you choose deposits with a high credit rating, then such deposits are safe and secure for investment. For instance, Shriram Finance fixed deposits are rated [ICRA]AA+ (Stable)" by ICRA and "IND AA+/Stable" by India Ratings and Research and are completely safe for investment.
5. What is the interest rate offered on NBFC fixed deposits at Shriram Finance?
The interest rates on Shriram Finance Fixed Deposits depend on the following factors:
- Your age: senior citizens enjoy a 0.50%* p.a. additional interest on their deposits
- Your gender: female depositors enjoy a 0.10%* p.a. additional interest on their deposits
- Type of deposit: cumulative FDs offer higher interest rates compared to non-cumulative ones
- Deposit tenure: the longer the period of deposit, the higher would be the interest rate
- Interest frequency: Annual interest rates are higher than monthly, quarterly or half-yearly interest rates.
- With Shriram Finance, you can enjoy interest rates up to 9.40%*p.a.
6. Can I choose between cumulative and non-cumulative interest options?
Yes, you can choose between cumulative and non-cumulative interest options. While the former pays a lump sum interest on maturity, the latter pays the interest as regular income.
7. Is there a penalty for premature withdrawal of NBFC fixed deposits?
Yes, a penalty is levied for premature withdrawal of NBFC fixed deposits.
8. What is the process for renewing or closing an NBFC fixed deposit account?
You can choose to renew or close the NBFC fixed deposit by informing the NBFC of the same before the maturity date.
