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Why you Should Pay Attention to the CRISIL Rating of Company FDs

Financial planning is not only about making optimal investments, but also avoiding reckless decisions. It may so happen that you may rush to make an investment simply because of hearsay or to follow a trend set by your friends or family.

This may lead to detrimental results. However, credit ratings by agencies offer a smarter way to make good investment choices. One such rating agency is CRISIL, which helps you evaluate the safety of company fixed deposits. Since all company FDs are not the same, CRISIL separates those of high caliber from ones that may not be credible.

What is CRISIL and what Does it do?

CRISIL is short for the Credit Rating Information Services of India Ltd. It is a company that was incorporated in 1987, with the objective of analyzing, rating, and evaluating various securities and instruments. Like any other credit rating agency, CRISIL also rates a borrower’s ability to pay back debt. Standard & Poor, which is one of the world’s leading provider of independent credit ratings, indices and risk evaluations, holds a major stake in CRISIL.

How does CRISIL Rate Fixed Deposits?

The financial world operates on an invisible, yet indispensable element of trust. When you hand over money to a debtor, you are doing so on the assurance that you will get back what is owed to you as promised. The same is the case with a fixed deposit. FDs are started with the understanding that the financial company owes you the money you have deposited along with the assured return or interest.

So, CRISIL creates a rating system for FDs linking a financial institution’s own long-term credit rating to its FD offering lots of benefits. It takes into account the FD issuer’s funding source, debt repayment profile along with liquidity. It also factors in the maturity profile and renewal rate of the FD to arrive at the final rating.

This rating, which varies from FAAA (the safest) to (FD) which is the least credible, then gives you a way to evaluates the possibility or the probability of you getting your money back safely.

How do CRISIL Ratings Affect Investors Like you?

If it were not for credit rating agencies like CRISIL, it would be very easy for scammers to fool investors or for investors to fall into a trap and lose their hard-earned money. CRISIL ratings are thus an invaluable tool for investors. CRISIL ratings helps you to gauge a company fixed deposit’s safety by separating high risk and low risk options. It provides a benchmark against which you can compare various FD schemes and make the right choice.

For example, when you review the Bajaj Finance Fixed Deposit (FD), you can be certain that your money is in safe hands. This is because these FDs are rated as FAAA by CRISIL, which indicates the highest safety. Bajaj Finance FDs also contain the MAAA (Stable) rating by another agency called ICRA.

Is There a Co-Relation Between CRISIL Ranking and Interest Rates?

There is no direct co-relation between the CRISIL ranking of company fixed deposits and their interest rates as such. However, you may invariably notice that companies that get a bad rap from CRISIL are usually the ones who offer the highest interest rates in order to convince investors to open FDs with them. However, when you think about choosing an FD that offers you high returns, checking the CRISIL rating will reveal the safety of your choice, and help you make the right decision.

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Written by Aman Khanna

Aman  is working in the domain of Investment management in one of the top universities. He has published research papers and case studies in Investment and Fixed Deposit marketplace. He is an avid blogger in the domain of Investment management. you can also find him on social networking platforms.

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