Mutual Funds vs Company Fixed Deposits: Safety Comparison
With bank FDs paying around 6.4% to 6.6% and the RBI raising the repo rate to 5.5% on October 7, 2026, many salaried professionals are looking at company fixed deposits from NBFCs, which offer 7.5% to 8% for the same tenure. The question is whether that extra 1% to 1.5% is worth the risk. This guide is a mutual funds vs company fixed deposits safety comparison, focused on what can go wrong with your money in each and how much protection you really have.
The gap is not just in interest. A company FD is a loan to one company, with no deposit insurance; the RBI states plainly that DICGC cover is not available to depositors of NBFCs. A debt mutual fund spreads your money across dozens or hundreds of bonds under SEBI’s rules, but its value moves with interest rates, and that has hurt in 2026: corporate bond funds returned only about 3% to 4.2% over the past year as bond yields rose.
We compare company FDs with corporate bond and banking and PSU debt funds across credit risk, regulation, returns, liquidity and tax, using the latest rates (Bajaj Finance from October 7, Shriram Finance from October 11, 2026) and actual fund NAVs to October 16, 2026, and then test both in a default scenario.
Mutual Funds vs Company Fixed Deposits: Safety at a Glance
| Safety factor | Company FD (NBFC or HFC) | Debt Mutual Fund (corporate bond, banking and PSU) |
|---|---|---|
| What you own | A deposit with one company | Units of a fund holding many bonds |
| Regulator | RBI (NBFCs and housing finance companies) | SEBI |
| Deposit insurance | None; DICGC does not cover NBFC deposits | None; no insurance on fund units |
| Diversification | Single company | Large funds hold 100 to 240 securities; top holding often under 4% |
| Minimum credit rating to accept deposits | BBB- (investment grade), as per RBI | Corporate bond funds must keep at least 80% in AA+ and above |
| Returns | Fixed for the tenure (about 7.45% to 7.85% at large AAA NBFCs, 3 to 5 years) | Market-linked; 1 year about 3% to 4.4%, 3 years about 6.8% to 7.4% a year |
| Interest rate risk | None while you hold | Yes; NAV falls when yields rise |
| Worst fall seen in large funds (10 years) | Full or partial loss if the company defaults | About 2% to 3% peak-to-trough |
| Liquidity | Lock-in of 3 months; penalty on early withdrawal after that | Redeem any working day; most have no exit load |
| Tax | Interest taxed at slab every year | Gains taxed at slab only on redemption |
| TDS | 10% if interest exceeds Rs. 10,000 a year from one company | None for resident individuals |
Company FD rates are from the companies’ websites: Bajaj Finance (effective October 7, 2026), Shriram Finance (effective October 11, 2026) and Mahindra Finance (effective May 22, 2026). Fund data is from NAVs to October 16, 2026.
In short: a company FD gives a known return but concentrates your risk in one borrower with no insurance. A debt fund diversifies credit risk and offers liquidity and tax deferral, but its value moves with interest rates.
What Company FDs Are in 2026
A company fixed deposit is a deposit placed with a non-banking financial company (NBFC) or a housing finance company (HFC) instead of a bank. You lend money to the company for a fixed period at a fixed rate, and it uses that money for its lending business.
Who can accept deposits. According to the RBI’s FAQs on NBFCs (updated September 15, 2026), only NBFCs that hold a deposit-accepting certificate of registration and have at least an investment-grade credit rating of BBB- can accept public deposits, up to 1.5 times their net owned funds. Deposits must be for 12 to 60 months, the interest rate cannot exceed 12.5%, and NBFCs cannot accept deposits repayable on demand. The RBI also states that DICGC deposit insurance is not available to NBFC depositors.
Current rates at large AAA-rated NBFCs (general depositors)
| Company | Credit rating (as stated by the company) | Rate for 12 months | Rate for 3 to 5 years | Effective from |
|---|---|---|---|---|
| Bajaj Finance | CRISIL AAA/Stable, ICRA AAA (Stable) | 6.80% | 7.75% (31 to 60 months) | October 7, 2026 |
| Shriram Finance | CRISIL AAA/Stable, ICRA AAA (April 2026) | Not shown here | Up to 7.85% | October 11, 2026 |
| Mahindra Finance | CRISIL AAA/Stable, IND AAA/Stable | Not shown here | Up to 7.45% | May 22, 2026 |
Senior citizens get extra: 0.35% to 0.50% more at these companies, and some add 0.05% for women depositors. Shriram Finance raised rates by up to 40 basis points in mid-October 2026 after the repo hike. Mahindra Finance’s “up to 7.85%” headline includes 0.35% for senior citizens and 0.05% for women; the general rate shown above deducts those. Rates change often; check the company website before investing.
For comparison: SBI pays 6.40% to 6.45% on 2 to 3 year FDs for general customers in October 2026.
Early withdrawal rules. Since January 1, 2025, RBI rules allow individual depositors to withdraw up to 50% of the principal or Rs. 5 lakh, whichever is lower, within the first three months in an emergency, without interest, and the full amount for critical illness. After three months, premature withdrawal is allowed at a reduced interest rate, as per the company’s terms.
Which Mutual Funds Compete with Company FDs
Not every debt fund is a fair comparison. The categories closest to a company FD in purpose are:
| Category | What SEBI requires it to hold | Typical use |
|---|---|---|
| Corporate bond funds | At least 80% in corporate bonds rated AA+ and above | 2 to 4 year goals; closest substitute for AAA company FDs |
| Banking and PSU debt funds | At least 80% in debt of banks, PSUs, public financial institutions and municipal bonds | Conservative 2 to 4 year money |
| Short duration funds | Portfolio duration of 1 to 3 years | 1 to 3 year goals |
| Credit risk funds | At least 65% in bonds rated AA and below | Higher yield, higher risk; not an FD substitute |
Large funds in the two main categories (direct plans, October 2026)
| Fund | Expense ratio | AUM (approx.) | 1-year return | 3-year return (a year) |
|---|---|---|---|---|
| HDFC Corporate Bond Fund | 0.38% | Rs. 29,500 crore | 3.10% | 6.76% |
| Aditya Birla Sun Life Corporate Bond Fund | 0.34% | Rs. 22,700 crore | 3.38% | 6.86% |
| SBI Corporate Bond Fund | 0.37% | Rs. 21,800 crore | 4.13% | 7.11% |
| Kotak Corporate Bond Fund | 0.36% | Rs. 14,800 crore | 4.05% | 7.21% |
| Nippon India Corporate Bond Fund | 0.37% | Rs. 8,900 crore | 4.18% | 7.37% |
| Axis Banking and PSU Debt Fund | 0.36% | Rs. 12,000 crore | 4.21% | 6.81% |
| ICICI Prudential Banking and PSU Debt Fund | 0.40% | Rs. 8,000 crore | 4.40% | 6.99% |
| HDFC Banking and PSU Debt Fund | 0.35% | Rs. 5,100 crore | 3.79% | 6.87% |
Returns are calculated from NAVs to October 16, 2026; expense ratios and AUM are from fund platform data in mid-October 2026.
The 1-year numbers are unusually low because bond yields have risen in 2026: the RBI moved from a pause to a rate hike, and debt funds sold bonds after the policy shift. When yields rise, existing bonds lose value, and fund NAVs fall. Over 3 years, returns are closer to FD rates.
Difference 1: Credit Risk and Concentration
Credit risk is the risk that the borrower does not pay you back. This is the single biggest safety difference.
Company FD: all eggs in one basket. Your entire deposit depends on one company’s ability to repay. If it runs into trouble, your interest and principal are both at risk. A AAA rating means the agency considers the risk very low today, but ratings can change quickly. Several NBFCs and HFCs rated AAA or AA in the past were downgraded sharply within months before defaulting, as happened in the IL&FS crisis of 2018 and the DHFL collapse of 2019.
Debt fund: risk spread across many issuers. HDFC Corporate Bond Fund held about 239 securities in October 2026, with the largest single holding at about 3.9% of the portfolio. SEBI also caps how much a debt fund can invest in a single issuer, with tighter limits for lower-rated bonds. If one issuer defaults, the loss is limited to its share of the fund.
| Company FD | Corporate bond fund | |
|---|---|---|
| Exposure to one borrower | 100% | Usually under 5% per issuer in large funds |
| Credit quality | One rating, of one company | Mostly AAA and AA+, plus government securities |
| Rating downgrade impact | Your deposit is stuck with the company | Fund can sell or reduce exposure; NAV adjusts |
What this means in practice: A Rs. 5 lakh FD in one NBFC is a concentrated bet on that company. The same money in a large corporate bond fund is spread across 100 or more issuers. If you choose company FDs, split across several AAA companies.
Difference 2: Regulation, Insurance and What Happens in a Default
Neither a company FD nor a debt fund has deposit insurance. What differs is how losses play out and what recourse you have.
Company FDs.
- No DICGC cover. Unlike bank FDs, which are insured up to Rs. 5 lakh per depositor per bank, NBFC deposits have no insurance.
- In a default, you become a creditor. Deposits can be frozen, and repayment depends on the company’s resolution or insolvency process, which can take years. Depositors in some past NBFC and HFC failures recovered only part of their money after long delays.
- Recourse. If a company fails to repay a matured deposit, depositors can complain to the RBI’s grievance mechanisms and approach the National Company Law Tribunal (NCLT), as set out in the RBI’s FAQs.
Debt mutual funds.
- No insurance, but the loss is shared and proportionate. If a bond in the portfolio defaults, the fund marks it down, and every investor’s NAV falls by that bond’s share of the portfolio.
- Segregated portfolios. SEBI allows funds to separate a defaulted bond into a side pocket. Investors keep units in it and receive any later recovery, while the main portfolio continues normally.
- Assets held by a custodian in a trust. The fund’s bonds are not on the fund house’s balance sheet, so even if an AMC itself faces problems, the assets belong to investors.
- The worst case seen. In April 2020, Franklin Templeton wound up six debt schemes, freezing redemptions. Investors eventually got their money back over the following years, but liquidity was locked for a long time. Those were credit-risk-oriented schemes, not the high-quality corporate bond or banking and PSU funds discussed here.
What this means in practice: A company default can cost you a large share of your deposit. A single default in a well-diversified debt fund usually costs a few percent of NAV.
Difference 3: Returns, Fixed vs Market-Linked
Company FDs lock in today’s rate. A 3-year Bajaj Finance FD booked in October 2026 at 7.75% will pay 7.75% even if rates fall. If rates keep rising, as markets expect after the October hike, you miss out unless you break and reinvest.
Debt funds move with interest rates. Their return has two parts: the interest earned on the bonds they hold, and price changes as yields move. When yields rise, as in 2026, NAVs dip in the short term, but the fund then reinvests at higher yields, which lifts future returns. When yields fall, debt funds gain.
| Period to October 16, 2026 | Large corporate bond funds | Large banking and PSU funds | AAA company FD (rate today) |
|---|---|---|---|
| Last 3 months | -0.5% to +0.4% | -0.1% to +0.3% | Fixed |
| 2026 so far | 2.4% to 3.5% | 2.9% to 3.3% | Fixed |
| 1 year | 3.1% to 4.2% | 3.8% to 4.4% | 6.8% for 12 months (Bajaj Finance) |
| 3 years (a year) | 6.8% to 7.4% | 6.8% to 7.0% | 7.0% to 7.75% (Bajaj Finance, 18 to 60 months) |
| 5 years (a year) | 6.1% to 6.7% | 6.1% to 6.5% | Not applicable |
Volatility. Over the last 10 years, the largest peak-to-trough fall in these large funds was about 1.7% to 3.1%, and the worst single day was a fall of about 0.7% to 1.8%. That is very different from equity, but it is not zero.
What this means in practice: Right now, AAA company FDs offer a higher and more certain return than debt funds have delivered over the past year. That is the trade-off: you get a better, fixed rate in exchange for concentrating your risk in one company.
Difference 4: Liquidity and Premature Withdrawal
| Need money early | Company FD | Debt mutual fund |
|---|---|---|
| Within 3 months | Only in emergencies: up to 50% of principal or Rs. 5 lakh, whichever is lower, without interest; full amount for critical illness | Redeem any working day |
| After 3 months | Allowed, usually at a reduced interest rate as per company terms | Redeem any working day |
| Partial withdrawal | Usually the whole FD must be closed | Redeem any amount |
| Exit load or penalty | Lower interest rate | Most corporate bond and banking and PSU funds have no exit load |
| Time to receive money | A few working days after the request | Usually 1 to 2 working days |
| In a crisis at the company | Withdrawals can be frozen | Redemptions continue unless SEBI-permitted restrictions apply |
What this means in practice: For money you may need at short notice, a debt fund is far more flexible. A company FD suits money you are sure you will not touch for the full tenure. If you do choose company FDs, laddering several smaller deposits across different tenures reduces the cost of breaking one early.
Difference 5: Tax and TDS
Both company FD interest and debt fund gains are taxed at your slab rate. The difference is timing and TDS.
| Company FD | Debt mutual fund | |
|---|---|---|
| How returns are taxed | Interest at slab rate, as “Income from Other Sources” | Capital gains at slab rate (for units bought after April 1, 2023) |
| When tax is due | Every year on accrual, even for cumulative FDs | Only when you redeem |
| TDS for resident individuals | 10% if interest from one company exceeds Rs. 10,000 in a financial year | None |
| Form 15G or 15H | Can be submitted to avoid TDS if your income is below the taxable limit (Form 121 under the Income Tax Act 2025) | Not needed |
| Senior citizens | Interest from company FDs is not eligible for the Section 80TTB deduction meant for bank and post office deposits | Not applicable |
Note the lower TDS threshold for company FDs. Banks deduct TDS only above Rs. 50,000 of interest a year (Rs. 1 lakh for senior citizens), but for deposits with companies, the threshold is Rs. 10,000.
The deferral advantage. Because a debt fund is taxed only on redemption, the full amount keeps compounding. In the 30% slab, this deferral alone can add a few percent to the final value over 3 to 5 years at the same pre-tax return.
For how this fits into your overall tax, see our income tax slabs FY 2026-27 guide. Company FD interest and TDS appear in your AIS; our guide on how to read Form 26AS and AIS explains how to match them.
Worked Example: Rs. 5 Lakh for 3 Years
Pooja, 40, a project manager in Gurugram, is in the 30% slab and has Rs. 5 lakh she will not need for 3 years. She compares a bank FD, a AAA company FD and a corporate bond fund.
Assumptions: Bank FD at 6.45% (SBI, 2 to 3 years). Company FD at 7.75% (Bajaj Finance, 31 to 60 months, cumulative). Corporate bond fund at 7.0% a year after expenses, close to what large funds delivered over the last 3 years; this is an assumption, not a guarantee. FD interest is taxed every year at 31.2%; fund gains at 31.2% on redemption.
Normal scenario: no default
| Bank FD | AAA company FD | Corporate bond fund | |
|---|---|---|---|
| Value after tax | Rs. 5,69,560 | Rs. 5,84,320 | Rs. 5,77,420 |
| Post-tax gain | Rs. 69,560 | Rs. 84,320 | Rs. 77,420 |
| Post-tax return a year | About 4.4% | About 5.3% | About 4.9% |
| Insurance | DICGC up to Rs. 5 lakh | None | None |
| Can she exit early without penalty? | No | No | Yes |
In a normal scenario, the company FD comes out about Rs. 6,900 ahead of the debt fund and about Rs. 14,800 ahead of the bank FD.
Stress scenario: a default
| AAA company FD | Corporate bond fund | |
|---|---|---|
| What goes wrong | The company defaults in year 2; deposits are frozen | One issuer making up 4% of the fund defaults in year 2 and is written off |
| Impact | Repayment depends on a resolution process; if only half the principal comes back years later, she gets Rs. 2.5 lakh | NAV falls by about 4% |
| Value after 3 years | Uncertain; Rs. 2.5 lakh in this illustration | About Rs. 5,60,560 after tax |
What the numbers show: The company FD’s advantage in a good year is about Rs. 7,000. Its cost in a bad year can be lakhs. The debt fund’s worst case in this illustration is a modest underperformance; it still ends with a small gain.
These scenarios are illustrations. Large AAA NBFCs have strong track records, and defaults are rare. But the asymmetry is why diversification matters more than the extra 0.5% to 1%.
Which is Safer for Whom
| Your situation | Safer choice | Why |
|---|---|---|
| Cannot accept any loss of principal | Bank FD within the Rs. 5 lakh DICGC limit per bank | Only option with deposit insurance |
| Want a higher fixed rate and can hold to maturity | AAA company FDs, split across two or three companies | Fixed return; spreading limits single-company risk |
| May need the money before maturity | Corporate bond or banking and PSU fund | Redeem any day; no lock-in |
| Investing a large amount (Rs. 10 lakh or more) | Debt fund, or split across several FDs | Avoid concentrating in one company |
| In the 30% slab, 3-year horizon or longer | Debt fund | Tax deferral; no TDS |
| Senior citizen relying on monthly income | Bank FDs and post office schemes first; AAA company FDs only for a portion | Insurance and Section 80TTB benefit apply to bank interest |
| Tempted by 9% to 11% offers from lower-rated companies | Avoid | Higher yield signals higher default risk |
The short answer: On safety alone, a well-diversified debt fund is safer than a single company FD, because no one borrower can do serious damage. On predictability, a AAA company FD is more certain while the company stays healthy. For most salaried professionals, the safest high-yield approach is a mix: bank FDs for the emergency fund, a corporate bond or banking and PSU fund for medium-term money, and, if you want company FDs, only AAA-rated ones, spread across companies and kept to a modest share.
For broader planning, our tax saving tips for salaried employees and old vs new tax regime comparison cover how these choices fit into your overall tax picture.
Safety Checklist Before Investing in a Company FD
- RBI registration: Confirm the company holds a deposit-accepting certificate of registration. The RBI publishes the list of NBFCs permitted to accept deposits.
- Credit rating: Prefer AAA. Check the rating from at least two agencies, and look for any recent downgrade or “negative outlook”.
- Rate vs peers: If a company pays 1% to 2% more than other AAA NBFCs, ask why. Higher rates often mean higher risk.
- Parent group and size: Large, well-capitalised groups have historically been more resilient.
- Spread your money: Avoid putting more than a small share of your savings in any one company.
- Tenure: Shorter tenures (1 to 3 years) reduce the time your money is exposed to one company’s fortunes.
- Payout option: Non-cumulative options (monthly or quarterly interest) return part of your money along the way.
- Nomination and documents: Add a nominee and keep the FD receipt or statement safely.
- Read the premature withdrawal terms: Know the penalty before you invest.
- Avoid unregistered schemes: Any entity offering “deposits” without RBI registration, or promising unusually high returns, is a red flag.
Common Mistakes to Avoid
- Assuming company FDs are insured like bank FDs. They are not. DICGC cover applies only to bank deposits.
- Chasing the highest rate. Lower-rated NBFCs offering 9% or more carry meaningfully higher default risk.
- Putting everything in one company. Concentration is the biggest avoidable risk in company FDs.
- Comparing a debt fund’s weak 1-year return with an FD’s rate and concluding funds are always worse. 2026 has been a rising-rate year; over 3 years, returns have been much closer.
- Treating debt funds as risk-free. NAVs can fall when rates rise or a bond defaults; choose large, high-quality funds.
- Picking credit risk funds as FD substitutes. They hold lower-rated bonds by design.
- Ignoring TDS at Rs. 10,000. Company FD TDS starts at a much lower threshold than bank FDs; submit Form 15G or 15H if eligible, and match TDS with your AIS.
- Not declaring cumulative FD interest every year. Tax is due on accrual, even if the interest is paid only at maturity.
Frequently Asked Questions
Are company fixed deposits safe in 2026?
AAA-rated deposits from large, well-run NBFCs have a strong repayment record, but they are not risk-free. There is no DICGC insurance, and your money depends on one company. Spreading across several AAA companies and keeping tenures short reduces the risk.
Are company FDs insured by DICGC?
No. The RBI states that DICGC deposit insurance is not available to depositors of NBFCs. Only bank deposits are insured, up to Rs. 5 lakh per depositor per bank.
Is a debt mutual fund safer than a company FD?
On credit risk, a well-diversified corporate bond or banking and PSU fund is generally safer, because one default affects only a small part of the portfolio. But debt fund NAVs can fall when interest rates rise, as in 2026, while an FD’s rate is fixed.
What are the best company FD rates in October 2026?
Among large AAA-rated NBFCs, Bajaj Finance offers 7.75% for 31 to 60 months (from October 7, 2026), and Shriram Finance offers up to 7.85% for general depositors (from October 11, 2026). Senior citizens get 0.35% to 0.50% more.
Can I withdraw a company FD early?
Within the first three months, only in emergencies: up to 50% of principal or Rs. 5 lakh, whichever is lower, without interest, and the full amount for critical illness. After three months, early withdrawal is allowed at a reduced rate.
What is the TDS limit on company FD interest?
TDS at 10% applies if interest from one company exceeds Rs. 10,000 in a financial year. For bank FDs, the threshold is Rs. 50,000 (Rs. 1 lakh for senior citizens).
Why have debt fund returns been low in 2026?
Bond yields have risen as the RBI shifted towards tightening, raising the repo rate to 5.5% on October 7, 2026. Rising yields reduce bond prices, which lowers debt fund NAVs in the short term.
What should I check before investing in a company FD?
RBI registration as a deposit-taking NBFC, a AAA rating from more than one agency, no recent downgrade, a rate in line with peers, and the premature withdrawal terms.
