Safety is a key parameter when choosing which financial tool to invest in. Making sure that your investment amount stays intact is a key priority for all investors, especially the risk-averse ones. It should ideally be a primary check while investing in a financial tool. They offer multiple safe investment tools like Fixed Deposits, senior citizen Savings Scheme, National Pension Scheme, Sukanya Samriddhi Yojana, and Public Provident Fund, etc. Usually, the safety of an instrument is inversely proportional to the risk involved. Low-risk instruments have lesser risks and volatilities involved. Hence, experts suggest that your portfolio be balanced to offset risks.
Among safe investment tools, the fixed deposit is one such humble instrument that Indians have been investing in for ages. More than 90% of Indian households stay invested in an FD because they can stay assured that their funds will stay safe and also can earn significant returns at maturity. Bank and Post-office FDs are extremely risk-free as they are directly backed by the government. However, they yield slightly lower returns as compared to NBFC FDs. Investors who wish to earn more from their FDs can choose to park their money in NBFC FDs. Non-Banking Financial Companies (NBFCs) are financiers that offer high FD interest rates along with the safety of funds. The RBI keeps a strict check on these institutions making them reliable. Another indicator of reliability when it comes to investing in NBFC FDs are credit ratings. Inherently, the better the credit rating safer the instrument.
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All about credit ratings
When choosing an FD financier, checking and comparing not only FD interest rates but also their credit ratings is of paramount importance. Here is why.
Credit rating agencies like ICRA and CRISIL analyze NBFCs on various factors and give them ratings. These rates signify their credibility in the market. A higher credit rating signifies a safer fixed deposit financier.
Various factors are considered while assigning credit ratings. Few of them are listed below:
- Timely payments
- Default payments
- Debt repayment history
- Business expansion check
- Track record
- Customer service
- Liquidity management
- FD market and competition
- The company’s management team and business method
After having gone through these various factors the credit rating institutes like ICRA and CRISIL provide a rate, which signifies the company’s performance across all the above-mentioned sectors.
Here is the fundamental classification of CRISIL evaluations for NBFC with a tenure of over a year.
CRISIL AAA: Highest safety
CRISIL AA: High safety
CRISIL A: Adequate Safety
According to the above-mentioned nomenclature, the organisation’s FD evaluated as AAA is considered to be the safest and most secure.
The ratings do not directly affect the company and their FDs but play a massive role in forming a perception of the company FD in the eyes of the investor. The higher the ratings safer the FD is to invest in.
If you want to know more about fixed deposit maturity amount, use FD calculator.
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