According to a report presented by Bloomberg Quint, the share of fixed deposits in the total statistical returns of financial companies stood at 57.7% for the financial year 2017-18, which marks for a substantial contribution. The figures here indicate investor’s preference for fixed deposits which are driven by the fact that –
- Fixed deposits are one of the safest investment options that offer assured return.
- Investors will gain higher returns than that of a savings account.
Nonetheless, investors should first check the feasibility and profit factors to ensure they are investing in the right place. In this regard, CRISIL rating comes into light. This rating helps depositors and investors make financially sound decisions by helping them choose the right financial company.
What is CRISIL?
CRISIL is a global analytical company that researches and evaluates the financial performance and market position of a company and publish reports accordingly every quarter.
The company focuses majorly on two factors –
- Business risk – It takes into account the last three years of business performance, accounting quality, etc.
- Financial risk – It considers the market prospects of the concerned firm, financial performance of the company, and its relative position in the market compared to peers companies, etc.
Based on the above determinations, a rating is provided to the financial institution offering financial products like a fixed deposit. Apart from such companies, it also rates manufacturing units, industrial companies, urban local bodies, etc.
What is the use of CRISIL rating?
Investors or depositors can look for this rating and make correct decisions as it helps determine the right financial company for investment and narrow down the list for low-risk investment companies. Further, investors seeking to know whether their fixed deposit investment is really safe or not should learn about the CRISIL ratings and its meaning first.
Rating system by CRISIL
CRISIL rates companies based on the risks they possess for customers considering its sustainability in the market. Here, the CRISIL rating mentioned below and their meaning will help depositors decide which companies to avoid and which to choose.
- FD – Default.
- FC – High risk.
- FA – Adequate safety.
- FB – Inadequate safety.
- FAA – Highly safe investment option.
- FAAA – Highest safety.
- NM – Not meaningful.
Here, NM refers to those companies which aren’t worthy of rating as they are probably on a dispute or facing some other issues. CRISIL also assigns a positive (+) or negative (-) sign along with the ratings to indicate their worthiness. Companies with FAAA rating are the most secure and safest options for a deposit.
For instance, customers investing in a Bajaj Finance Fixed Deposit are one of the safest investment options because of the FAAA rating.
CRISIL rating or higher rate of interest?
Some financial companies with a CRISIL rating that indicates higher risk tend to offer a lucrative rate of interest to depositors to attract customers to invest. Even if the offer seems high-value, opting for a scheme from such companies isn’t a wise decision as the risk possessed is high.
In case the financial company faces substantial loss or loses its position in the market, they won’t be able to manage finances and secure the investments made by the depositor. Consequently, CRISIL ratings are an equally important factor of consideration along with interest rate.
Factors considered by CRISIL for fixed deposit
Before rating a company that has fixed deposit products, CRISIL considers the following factors –
1. Interest rate
The rate of interest offered by the financial company is taken into consideration before determining the CRISIL rating. Conversely, the rating doesn’t necessarily have an impact over the rating.
2. Assured returns
CRISIL tends to provide a higher rating to companies that are well-established and safe from financial risks so that they can provide assured returns to customers on maturity. A fixed deposit is a safe investment option for retirement and provides depositors with assured returns.
Withdrawal options on maturity and interest pay-out option for cumulative as well as non-cumulative deposits are considered for the evaluation intending to bridge the gap between investors and financial companies.
Auto-renewal features are an important factor of consideration for CRISIL as well. This removes the hassle for depositors as they don’t have to visit the branch for renewing it.
These are some significant factors that aid depositors’ investment experience and hence CRISIL considers these factors before rating a company. Looking for such ratings before investing is thus advisable to all.