Few Basic Facts About Fixed Deposits In India

A Fixed deposit in India is an age-old financial product. This is one product that people rarely optimize from a long term investment point of view. In spite of being an effective investment tool, a lot of investors are not well-informed about the opening and maintaining a fixed deposit account in India. So, here are few key facts that will help you along the way.

The type of fixed deposits

You can invest in fixed deposits through banks, post-offices or companies. Though most of the people know about a bank’s fixed deposit accounts, all are not aware about the company fixed deposits, which offer much better interest rates too. Each bank and company has different policies about maturity and premature withdrawals; however, you shouldbe aware about these details when you invest.

The income tax on fixed deposit schemes

Fixed deposit schemes are known as taxable since the TDS (Tax Deducted at Source) is applicable on theseschemes. For the most part, this is a known fact. However, what most people don’t realize is that if the total sum of interest in a particular branch is lower than Rs. 10,000, there is no TDS applicable. Hence, you can escape the TDS by ensuring that you don’t earn an interest of more than 10, 000 on your fixed deposit, for a particular financial year.

The returns on a fixed deposit

As a financial tool, the return on investment (ROI) on a FD is very important. The investors are aware about the interest rates on ideal fixed deposits . Although, they are not aware about the competitive rates that several banks offer nor do they know about the different types of returns.Different organizations offer different rates to encourage investors,whilstproviding monthly, quarterly and annualgrowth option for the interest. This can be used strategically as you can increase your returnsby reinvesting the monthly returns in a recurring deposit or a monthly systematic investment plan (SIP).

If you have discovered any new facts about fixed deposits while reading this piece, you will be surprised to know that there is still much more to know and understand. You cannot overlook this kind of information as it is vital to your investment strategy per se. Even if you are investing in the most basic FD, you must stay informed about these kinds of details that may help you in the months to come to form a better investment plan.

Always Consider Several Fixed Deposits Before Finalizing

Many people often make the decision to transfer their funds from a savings or current accounts into a fixed deposit. While this is done to ensure a degree of financial security, most investors are unaware of other potential gains and benefits that different financial partners may offer. Any financial expert in this day and age will strongly suggest that you research several options as well as financial partners before investing in a fixed deposit. So, what are the potential factors that need to be considered before finalizing the best option?

The interest rate is the first and the most important factor. It may seem like most banks and financial organizations have similar rates but the difference can significantly impact how much you have to pay. While there is no real way to pinpoint the fixed deposit account with the best interest rate , there are a few options that you should look into. Some organizations provide an alternative wherein you can re-invest the interest received along with the principle amount to earn compound interest rates. If your FD has sufficient principal amount, however, you can opt for a monthly interest instead. Users can then re-invest that monthly interest in recurring deposits or SIP (Systematic Investment Plan) to increase their returns considerably. Both these strategies merit consideration while you decide which fixed deposit scheme and financial partner to opt for.

Another factor that you need to look into is how your financial partner intends to support you. Will you be able to take a loan against that amount? How quickly can you get premature or partial withdrawals? How much does it cost for premature withdrawals? How do they renew their FDs? While these factors may not affect your final decision, they certainly could make your operations easier. If you find a number of organizations with similar FD interest rates, it might be advisable to opt for the one that caters well to the customers. A customer-friendly organization is definitely a better choice in the long run as they will incorporate better services and user-friendly technology in their operations.

The most important factor is the ease of operation. You should always look at a bank or financial organization with online operations as it becomes easier to open and operate a fixed deposit account . While this may seem to be a basic consideration, it could come in very handy when you least expect it. If you can, for example, withdraw a partial amount from your FD during non-banking hours, it could be a great add-on in case of financial and medical emergencies. These factors basically improve the liquidity of this financial investment without affecting safety. You can also save travel time and expenses while using the same. Online services also ensure that you can open an account in any branch in the city much more easily.

While these factors may seem simple on the surface, it is important to carefully evaluate the same before selecting the right financial investment for you. You may even opt for a different banking institution from your original choice once you’ve completed your research. Isn’t it a worthwhile choice, though, if you can earn more and invest easily?

Fixed Deposit What All Does It Offer?

Fixed deposits are traditionally known as low-risk and high-reward investment products. Banks and financial institutions invest these funds into debt instruments across the market and in return offer you an amount over the investment in the form of interest. This simplicity makes this one of the easiest financial products to pick from the bouquet of financial services offered by organizations.

But what else does a fixed deposit account have to offer? This financial product offers interest amounts at a pre-determined interest rate which differs between organizations. Within every organization, there are also several products based on time frames and the age group. Senior citizens get to deposit their funds, for example, at a higher interest rate than younger people. While organizations do allow you to invest in FDs for as short a period as 7 days, standard FDs offer great interest rates for anyone who invest for more than a year or so. With the right time frame, this product will offer higher interest rates as compared to other financial tools like a savings account. While the interest received is taxable, it offers an opportunity to earn more without having to deal with financial risks involved with investing in the stock market, mutual funds, commodities, etc.

FDs have higher liquidity than other financial investments. Any other investment, if withdrawn prematurely, could result in significant losses. These deposits, on the other hand, are much more flexible. The bank or financial organization will pay all due interest to the investor. There is a glitch to this, though. You may need to pay a penalty for making a premature withdrawal, although in most cases, the amount is minor. There are also organizations that have no applicable penalty on premature withdrawals, allowing you to protect your investment entirely in spite of premature or partial withdrawals. Most organizations offer overdraft or loan facility on these deposits as well. This basically means that you can take a loan against that investment. Most organizations offer up to 90 percent of the principal amount in loan.

The best part of the fixed deposit schemes is the fact that they are customizable. You can select the time frame as well as the interest processing that you are comfortable with. In other words, you can receive interest on monthly, quarterly or annual basis. You can also re-invest the interest to earn compounding interest on both the principal and the interest amount. It should be noted, though, that this reinvestment option is available in select organizations only. With the right strategy, this investment could be used to pay off certain monthly expenses or make strategic re-investments of your own.

So, as a financial tool, a fixed deposit is both safe and rewarding. Within every diversified portfolio, it is advisable to invest in some of these accounts strategically and keep them as low-risk tools. This in turn will help safeguard investors against the market vulnerabilities.

Choose A Tax Saving Fixed Deposit

A tax saving fixed deposit is a financial product that is used to avail tax benefits as per IT Act 80 (C). Like any other financial instrument, it comes with merits and limits but overall serves as a great investment tool. Most financial experts recommend including it in your tax investment portfolio.

What are the benefits of this product and why should you choose it? There are two advantages of Tax saving fixed deposits . The first advantage for users is that they can receive tax benefit on their investment based on the tax bracket they fall under. In addition, they earn interest on the investment as well. Though the interest rate varies with each year, the total return on this can range from 18 to 39 percent, based on the combination of tax bracket and interest rate. When added up, it results in a considerable amount of returns.

While the investment range can vary from Rs.100 to Rs.1,00,000, most people choose to invest the amount applicable to their tax bracket. It should be noted, though, that the interest on this investment is taxable. While that may be a disadvantage, balancing it is the fact that you can choose to earn quarterly, monthly or annual interest which can then be re-invested for compounded interest. It is important to understand your investment strategy clearly in order to make the right use of this customization.

You must consider the limitations of this product too. The lock-in period for tax saving fixed deposit is five years. When you compare it with the lock in period for tax saving mutual funds, which is three years, you might not want to invest. These FDs, though, have a unique advantage over mutual funds, which is safety. Mutual funds can be affected by any major economic incidences in the market. From a market crash, recession to bully period, your returns are not assured. At times, it is possible that you may get no returns other than just saving on tax. It is also possible that the value of your investment is considerably depreciated due to lowered NAV. Overall, diversifying your investment portfolio will ensure that you can retain stability.

Another limitation that you should consider is liquidity. A drawback to this is the fact that you cannot get a loan against a tax saving fixed deposit. While this affects your financial state, many financial experts suggest that you diversify your tax investment across all financial instruments, including FDs. This will allow you to enjoy higher liquidity over a period of time.

In the long run, a tax saving fixed deposit offers secure forms of tax investment. You can earn interest and avail tax benefit too. As an investment designed to save taxes, it is efficient and easy to use. As most banks, by and large, offer a similar rate of interest, it is easy for you to find a financial partner for the same. However, it is also best to make sure that you use other tax saving instruments as well.