• Wednesday 26 December 2018

    What is ICRA and how does it affect your investments?

    The ICRA full form (Investment Information and Credit Rating Agency) itself suggests its purpose and definition. ICRA is an independent Indian professional agency that was established in 1991. The agency was initially abbreviated as IICRA and was a joint venture between Moody's Investor Service and many Indian financial service companies and commercial banks. The abbreviation was changed to ICRA in the year 2007.

    What is ICRA Credit Rating?

    The ICRA rating Scale  is mainly a symbolic representation of its opinion on the credit risks associated with debt issues. These ratings are designated to national credit rating scale for debt issues with Indian Rupees. This means that this rating system is only applicable within India. The ratings denote the debt issues that need to be cleared during the time of rating. Apart from this, ICRA also charges grading, performance ranking, and governance rating to the construction companies, mutual funds, and hospitals of India.

    Why is Credit Rating Important?
    ● Credit rating determines whether a person or institution will be able to repay a borrowed sum from any financial company.
    ● Higher the credit score more will be the ability to repay the borrowed money.
    ● Poor credit score indicates that the borrower has faced troubles in repaying a borrowed sum and may continue the same.
    ● Credit rating determines the eligibility of an individual, a group, or a company to avail external financing.
    ● The credit score highly affects the interest rates levied on the amount borrowed from any financial institution.
    ● Credit rating aids potential investors in deciding whether they should invest in bonds.
    ● Since credit ratings are variable, it becomes essential for investors as well as loan borrowers to maintain a high credit score.

    Effects of ICRA on Investments
    As mentioned above, it is essential to manage a good credit score for a healthy financial chart. Following are some of the impacts on investments in case of a bad credit score:

    ● Hampers Company’s ability to borrow money from any bank or Non-Banking Financial Company (NBFC).
    ● Effects long-term returns from equity and other investments
    ● Company’s rated with BBB- or higher are known as speculative grade which is also referred to as junk bonds. If a company is tagged as a junk bond, it will be difficult for them to buy bonds or borrow money.
    ● AAA is the highest rating given to financial institutions. Bajaj Finance, one of India’s leading NBFC is accredited with CRISIL’s FAAA rating and ICRA’s MAAA rating. Higher the grade, more reliable is the company.
    ● Credit ratings are used in collateralized debt obligations, mortgage-backed securities, and asset-backed securities.
    ● Credit rating agencies not only declare the creditworthiness of any company but also guides them to maintain a good credit score.

    What Should You Do to Maintain a Good Credit Score?
    Fixed Deposits (FD) are known to be one of the best investment options in India Unlike the market-linked investments like mutual funds and bonds, you do not have to pay high interest rates for volatile investment returns. Bajaj Finance offers the facility to open an FD with attractive interest rates. Due to the high stability rating, it is the safest financial provider for investment. You can flexibly choose the tenor of your FD from 12 to 60 months. Also, you can choose the type of FD you want to invest in from cumulative and non-cumulative FDs. The interest payout is flexible in the former and fixed in the latter type of investment.

    The minimum deposit is just Rs 25,000. You can make a premature withdrawal with a minimal charge. Also, you can avail tax deductions under the Indian Income Tax Act. Additionally, you get the advantage of taking a loan against FD wherein you can use up to 90% of your FD with lower interest rates compared to the traditional loan. With the quick application procedure, flexible tenor, adjustable interest rates, and secure online accessibility to your FD account, you can maintain a good credit score by eliminating the risk of timely repayment of the loan.

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