What You Should know When Investing In Fixed Deposit Schemes |
Posted: February 22, 2017 |
Indian investors look for investments with guaranteed return but minimum risk. This attitude gives them comfort in terms of risks and return. Fixed deposit is one such way where risk and return match with Indian investors’ mindset. What is a Fixed Deposit? The idea of fixed deposit is simple. You put money in a bank/NBFC for a specific period of time to get a predetermined rate of return. Fixed deposits are available in almost all public sector, private sector and commercial banks. Apart from banks, many non- banking financial companies also offer fixed deposit facilities. It is one of the most popular forms of investment in India. You can lock in your money for as low as 7 days and up to 10 years. How Does Fixed Deposit Work? When you are opening a fixed deposit, you are giving the organization a loan, for which they offer you interest. Every bank or financial organization determines their own Fixed Deposit interest rate. These rates can change according to the duration of investment, amount and economic conditions of a country. Banks also offer higher interest rate to senior citizens above 60. The rate of interest is decided on the date of investment. This mean even if the rate goes up or down during the duration of investment, you're entitled to get the rate promised at the time of investment. But keep in mind that you will get the money only after the maturity of the investment. Most banks and financial institutions charge a penalty on premature withdrawal. Bank Fixed Deposits Banks are considered the safest option for investment in fixed deposit. They take money from investors at a fixed rate and lend the money to people or institutions. Most banks offer good yield on fixed deposit. The interest rates on fixed deposit vary from 4% to 11%. Most banks offer 0.5%-1% higher rate for senior citizens. Corporate Fixed Deposits Normal fixed deposits offered by NBFCs are known as corporate fixed deposit. The interest rates offered by them are generally higher than banks, i.e. 8%-15%, but the higher the interest rates, higher the risks involved. Timing The Investment When you open a fixed deposit, the rates depend on the interest rate change of the country. The banks increase the deposit and lending rates when RBI tightens the monetary policy by increasing the key rates. This is the best time for investment. Obtaining The Interest When you fix a sum of money in banks or institutions, you can get the interest in two different ways.
Tax Benefits The income from fixed deposit taxable under income from other sources. If you are in a higher tax bracket, most of the return will go to tax. But if you are in the lower bracket of 10% or lower, both cumulative and non-cumulative fixed deposit are beneficial. FDs with investment tenure of 5 years can be claimed under 80C. This gives you a deduction up to 1 lakh. Some key aspects for consideration:-
These are some basic considerations of fixed deposit investment. These aspects can help you in making a good investment.
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