Fixed deposits (FDs) are popular investment options in India, as you get to enjoy adequate safety of the invested amount along with assured returns. Apart from banks, you can also invest a sizeable sum in fixed deposits offered by Non-Banking Financial Companies (NBFCs). 

Whether you invest in an FD through a bank or an NBFC, make sure to take proactive steps to manage the associated risk. On Bajaj Markets, you can explore FDs from various issuers. Visit the site to compare interest rates and make a well-informed investment. 

Understanding NBFC Fixed Deposits

An NBFC fixed deposit, like FDs offered by banks, offers a fixed interest income based on the interest rate and the chosen tenor. However, the interest rates are slightly higher than the traditional FDs. Here are some additional key points that you need to be aware of:

• You can deposit a lump sum amount for a timeline of your choice at a predetermined interest rate set by the issuer
• You receive interest on the invested amount at regular intervals, such as monthly, quarterly, half-yearly, or annually, depending on the payout option you choose
• When you choose to receive the payout at maturity, you get the proceeds at the end of the tenor
• The maturity amount includes the invested sum along with the interest earned on it
• You have the option to withdraw the entire amount at maturity or reinvest it in another fixed deposit
• You can ladder your FD investment with an NBFC to better suit your requirements at varied timelines 

Ways to Manage Risk While Investing in NBFC Fixed Deposits

Before zeroing in on an issuer, compare various FD schemes based on the interest rates and tenor options. Then, choose a plan that best aligns with your financial goals. Check out a few criteria to keep in mind that can help reduce the risk:

Conduct Research and Due Diligence

The initial step is to research the various options. Here are some points you must pay attention to:

• Compare the current FD rates offered by different NBFCs to assess market conditions
• Check the authenticity, financial stability and reputation of the NBFC to ensure the safety of the invested amount, which is easy when you compare ratings awarded by CRISIL and ICRA
• Assess the maximum investment period for FDs that the NBFC offers to assess if it aligns with your investment goals
• Check the tenors for which the issuers offer higher interest rates and decide if they align with your objectives 

Diversify Investments in Various NBFCs

Diversification is a key risk management strategy. By investing in fixed deposits across multiple NBFCs, you can reduce the impact of potential defaults on your overall investment portfolio. 

Additionally, diversification can be beneficial in balancing the risk exposure and enhancing the overall stability of your portfolio.

Get Professional Guidance

Seeking advice from financial experts or professionals is another great strategy to reduce the risk, especially if you are new to investing. Professional guidance can help you in the following:

• Understanding how fixed deposits work and the ideal amount to invest
• Learning about various types of risks associated with NBFC FDs so you can choose more trustworthy options
• Ideal ways to reduce risks as per your personal financial profile 

Claim Tax Benefits

Understanding the tax implications on the returns offered by NBFC FDs is essential for compliance as well as reducing your tax outgo. By claiming tax benefits available on fixed deposit investments, you can boost your overall gains and improve the tax efficiency of your portfolio.

Choose NBFCs with High Ratings

Credit bureaus rate financial institutions based on various factors to help investors like you assess their creditworthiness before investing. Here are the safety ratings for NBFCs that are considered ideal:

• ICRA AAA/Stable
• CRISIL AAA/STABLE 

By investing in fixed deposits of highly rated NBFCs, you enjoy better financial security and stability.

Invest in Short and Medium Durations

Opting for shorter to medium-term tenors when investing in NBFC fixed deposits can help manage reinvestment risk effectively. 

Things you Should Consider 

Here are some facts about NBFC FDs that can help you make the right decision:

• NBFC FDs typically provide higher interest rates than banks, offering a lucrative option for generating better returns 
• You can select the frequency of interest payouts to align with your cash flow requirements
• NBFCs offer a diverse range of investment tenor options, allowing you to choose the one that best matches your financial goals
• NBFCs allow you to nominate a beneficiary for the FD

Maximise the earnings from your FD by assessing how long you want to stay invested and matching the gains with your financial goals. Getting a fixed deposit from an NBFC can be beneficial in terms of interest rates but comes with certain risks. 

Before finalising an option, thorough research about the institution and take the right advice. This will ensure the security of your invested amount and minimise your exposure to risk.