CRISIL, one of the first credit rating agencies of India, was established in 1987. Formerly known as the Credit Rating Information Services of India Limited, CRISIL uses the CRAMEL framework to rate finance companies. This comprises an assessment of six major parameters: capital, resource raising ability, asset quality, management, earnings, and liquidity, that make up the acronym. As an investor, it is of paramount importance to see that your money is maturing in a risk-free environment. CRISIL ratings help you do just this.
If you are investing in a fixed deposit, for instance, CRISIL measures its liquidity, granularity of the programme, staggered maturity profile and renewal rate and then generates a CRISIL rating for the FD. This helps you determine whether it is a high- or low-risk FD and therefore enables wise investment decision-making.
What is the role of a CRISIL rating?
Having given ratings to over 30,000 companies, when you see a good CRISIL rating, you can rest assured that the instrument carries the highest degree of safety. It bridges the gap between the financial institution and you, the borrower or investor, allowing you to take the right decision based on a host of parameters. Expressed on a scale ranging from FAAA to FD, the CRISIL rating system indicates the health of an investment instrument. Here is a look at CRISIL’s rating system for FDs that come with a tenor that exceeds one year.
- NM: Not meaningful
- FD: Default
- FC: High risk
- FB: Inadequate safety
- FA: Adequate safety
- FAA: High safety
- FAAA: Highest safety
As is evident from this scale, you must choose FDs that come with the highest safety ratings, that is FAA or FAAA. Doing this will ensure that you receive the returns promised to you, and do so on time.
How do CRISIL ratings help investors?
- As an investor, it is important for you to know the options available to you while choosing an investment, such as an FD. CRISIL’s ratings help you compare different issuers. The rating provides an analysis on the issuer’s record with regards to repayment, liquidity and funding sources.
- CRISIL ratings help in measuring and managing the risk involved with each investment option. As an investor, knowing that your issuer will not fold under pressure, has the financial know-how to deliver returns, and has been doing so consistently, will help you choose a trusted issuer.
- The granularity of investment options can be overwhelming. Comparing various parameters such as the interest rate, repayment regularity and transparency of the financial institution can be tedious. However, the CRISIL rating is comprehensive, and gives you an accurate overview of investment instruments, allowing you to make a well-informed decision with ease.
So, you can see the impact a CRISIL rating can have when it comes to picking an investment such as an FD. A smart way of picking the best fixed deposit is by using an FD calculator. Bajaj Finance provides one with its Fixed Deposits that offer up to 8.75% interest, and carry CRISIL’s FAAA/Stable rating too. Simply enter the investment amount, interest rate, and tenor, and choose between cumulative and non-cumulative interest payouts to see how your money will multiply.