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

Every investor has a different idea regarding investments. Some prefer higher returns, whereas some prefer higher investment safety instead. However, above all, financial planning is about making optimal investment and avoid making any hot-headed decision. So, whether you’re investing in equities, stocks, or FD (Fixed Deposit); you have to take the same precautions to avoid any substantial loss of investment. 

Now, before you ask why you should consider CRISIL rating of a financial institution before taking their FD, let us tell you What is CRISIL?

CRISIL or Credit Rating Information Services of India Ltd is a company that analyzes and rates financial securities and instruments. Founded in 1987, CRISIL rates a borrower’s ability to pay back debt.

Now, the question is how does it affect FD? If you consider FD’s from a broader perspective, FD is a kind of financial loan where you’re the lender and the Bank or NBFC is the borrower. Considering the situation, the Banks or NBFCs ability to pay back should also be calculated, and that’s why CRISIL ratings are not limited only to individuals, financial institutions like banks and NBFCs are also evaluated using the similar criteria.

How CRISIL Rates Fixed Deposits?

The CRISIL links the financial institution’s long-term credit rating with it’s Fixed deposit. While rating a fixed deposit of any financial institution, CRISIL considers FD issuer’s funding source, debt repayment profile along with liquidity. Not just that, CRISIL also considers the maturity profile and renewal rate of the FD of the financial institution before sharing the final rating. 

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So, if CRISIL has rated a fixed deposit scheme of a particular financial organization as (FAAA), the scheme is the safest. If the Fixed deposit has been rated as (FD), the fixed deposit is least credible. Now, there is a similar organization ICRA, which is an Indian independent and professional investment information and credit rating agency. If it rates any fixed deposit scheme as (MAAA), the scheme is stable and you can invest in that particular organization.

Bottom Line: These things might be technical for you at the moment, but as you go deeper into the details of Fixed deposit investment you will realize the importance of these ratings. As an investor, it is important for you to consider these ratings to avoid any chances of getting duped.