Your Guide for Fixed Deposit as an Investment Option
One of the safest and most secure investments is Fixed Deposits. Those who escape from investing in mutual funds or equity due to the risk associated with them, consider FDs as a great choice for investment.
With a fixed deposit, you can deal with your financial risks easily and also fulfil your life goals.
People invest in FDs to secure their child’s future, education, or marriage, or to deal with unexpected expenses.
You can also save a substantial amount for your future with FDs by putting aside a lump sum amount and letting it grow over a while.
Types of Fixed Deposits:
- Standard Fixed Deposit: It is the most common deposit. It can be opened in any bank with your savings account.
1. You can deposit money for a predetermined period
2. Interest rate is set by the bank
3. Duration- 7 days-10 years.
- Corporate Fixed Deposit: This deposit is done with private companies.
1. Offers high rates as compared to banks
2. Always check the credit rating of the company to ensure your investment is safe.
- Cumulative Fixed Deposit: If you are planning for a long-term investment, this can be your choice.
1. Money invested for a predetermined period
2, Restricted from regular payouts
2. Money received at maturity
- Non-cumulative Fixed Deposit: For short-term investors with monthly goals, this is the investment you have been looking for.
1. You can choose from monthly, quarterly, half-yearly, and yearly interest payout
2. Enjoy the interest on your invested money
- Tax-saving Fixed Deposit: You can avail of this deposit to save tax. It is available at all banks.
1. Tax redemption up to 1.5 lakh in a year.
2. Lock-in period of 5 years. (Funds cannot be withdrawn during this period)
- Senior citizen Fixed Deposit: As the name suggests, this deposit is specifically for senior citizens.
1. Minimum age should be 60 years
2. FD Interest rates higher than standard rates
Interest Rate in Fixed Deposits
- The FD interest rates range from 3-9%.
- Minimum period for an FD is 7 days
- Minimum amount for a fixed deposit is INR 1000.
The interest rate of FD majorly depends on which bank or private company you are availing it from and for how much period. Longer the period, the higher the rate of interest.
Pros and Cons of investing in FD
- Assured Returns: This is one of the main reasons why people invest in FD.
You can invest your money for a fixed period and relax. You will receive a lump sum amount on maturity. This helps an investor in making a stable financial decision.
- Allows Premature Withdrawal: In case of an emergency, you can withdraw your funds from an FD. This comes with a fee. But it is a great assistance in case of an emergency. Also, there are no complex rules and regulations for premature withdrawal in fixed deposits.
- Tax Exemptions: The interest that you earn from an FD is taxable. Tax exemption is available to a certain level. Investors and senior citizens can legally evade taxes under Section 80C of the Income Tax Act.
- Loan against an FD: This is one of the greatest advantages of investing in an FD. If you are not planning to break an FD in case of an emergency, you can get a loan against your FD. You can avail of up to 90% of the FD amount as a loan from financial institutions.
- High security: Investing in FDQ is safe and secure. This is because the principal amount and interest that you will get are pre-decided. Factors like an unstable market and economic fluctuation don’t affect your returns in this case.
- Availability: This scheme is available in almost all banks/financial institutions. This makes it easier for the investors to visit their nearest govt or private banks, NBFC, or post offices to avail of this scheme.
- Quick renewals: If you are looking to build your wealth, you can renew your existing FD. This way you can double your interest amount and also build a profitable portfolio.
- A higher rate of interest for senior citizens: In almost all banks and financial institutions, senior citizens get a higher rate of interest for a fixed deposit as compared to standard interest rates.
- Flexible Tenure: One of the most attractive features of a fixed deposit. You can choose the period for your deposit at your convenience.
- Open to all: There are no complicated criteria for investing in a fixed deposit. Anybody who is an Indian citizen and NRI can open a fixed deposit with banks or NBFCs by just verifying their KYC.
- Lock-in period: You can withdraw your money from an FD easily. But still, there is a lock-in period until when you cannot take out your funds. The Lock-in period of your fixed deposit is mentioned on your FD receipt. You must keep a check on it and plan your withdrawal as per that.
- Penalties on withdrawal: One of the biggest advantages of opening a fixed deposit is a premature withdrawal facility but there is a penalty fee attached to it. A fixed percentage is charged for withdrawal by reducing your pre-determined interest rate.
- TDS: Interest earned from an FD is taxable. If your interest earned comes under the tax slab, 10% of TDS will be deducted from your interest.
- Lower Interest Rates: A fixed deposit is a secure investment. But some banks and financial institutions offer a lower rate of interest than inflation.
- Fixed interest: The rate of interest for your fixed deposit remains unchanged till maturity. Even if the FD interest rates are revised, you will receive the pre-determined interest rate only.
Every investment has some pros and cons. It depends on your expectations from an investment and the features that it offers. According to these factors, you can choose the best investment that suits your purpose.
This blog must have solved your queries about FD as an investment option.
You can explore more about investment opportunities here: https://www.piramalfinance.com/.
Also Read: Everything You Need To Know About Loan Against Securities In 2022
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