When it comes to picking a safe investment option, numerous people experience fixed deposits (FDs). This is on the grounds that FDs are viewed as safe and liquid and offer guaranteed interest income. A large number of Indians like to prefer FD.
Fixed deposit have immense popularity in India, thanks to its features of capital preservation, assured returns, tax benefits, and safety. Senior citizens especially favour fixed deposits because of the flexibility and liquidity that they offer, not the mention the higher interest rates.
Though FDs are not market-linked, any increase in the repo rate will increase the interest rates on FDs too. Thus, with the increasing repo rates, most issuers are offering higher FD interest rates in the current economic climate.
But are FDs risk-free at all? “Risk” is used vigorously with regards to returns and capital trustworthiness. If your head is safe and your profits are guaranteed, the investment seems, by all accounts, to be risk-free. Money related risks can be of numerous different sorts. Let’s take a look at the different risks of investing in a fixed deposit.
Read these 7 characteristics of fixed deposits to ensure that you make a better investment decision and realise higher returns over time.
- Enjoy higher interest rates
The repo rate is a determining factor basis which issuers alter the FD interest rates over time. Owing to the recent revisions in repo rate, most issuers are now offering higher interest rates on FDs. However, the company FDs in this regard are leading the way, giving you higher rates than bank FDs.
You can invest in reputable company FDs like the Bajaj Finance Fixed Deposit. Awarded an FAAA rating by CRISIL, these FDs are safe and offers a significant interest rate of up to 8.75%, if you invest in a cumulative FD for at least 36 months. This rate goes up to 9.10% if you are a senior citizen.
2. Get significant tax benefits
Your fixed deposit interest income is taxable as per the Income Tax of India. However, in case of company FDs, the interest income of up to Rs.5,000 is exempt from tax deductions under Section 80 C of the Income Tax Act. Also, if your income does not meet taxable limits for any given financial year then you can submit Form 15G and Form 15H and request the issuer not to deduct TDS on your earnings.
3. Invest a sum as per your choice
Banks and other financial institutions have a minimum deposit requirement to start a fixed deposit. However, you don’t need to have a huge sum to invest in an FD. For instance, top issuers like Bajaj Finance allow you to start a fixed deposit with an amount as low as Rs.25,000.
4. Choose when you want to receive earnings
When you invest in an FD, you can also select a suitable interest payout option for it. Based on your financial convenience, you can invest in a non-cumulative FD by choosing from monthly, quarterly, half-yearly and annual options. This means that you can access the interest earned on your investment at regular intervals.
Alternatively, you can choose to invest in a cumulative FD and receive the total interest on maturity along with your invested sum. If you are planning to pay for down-payment for your dream home or want to fund your children’s higher education then a cumulative FD is best. As a senior citizen, you can opt for a non-cumulative FD to get regular income for daily needs.
5. Check CRISIL ratings
CRISIL, a credit rating company, rates company fixed deposits based on the issuer’s credibility, track performance, and liquidity. Hence, before you invest in an FD, scout for the ones that are rated FAAA and above.
For instance, Bajaj Finance Fixed Deposits have a CRISIL rating of FAAA and an ICRA rating of MAAA. Both these ratings mean that the FD offers highest security for your funds. This helps you choose the more reliable FD with ease.
6. Take a loan against your FD
When faced with a financial emergency, you can pledge your fixed deposit investment as collateral to avail an affordable loan. This helps your FD continue to earn interest while you can get the money you need from your issuer as a loan.
7. Know the rules regarding premature withdrawal
Although FD lock your investment until maturity, they do offer liquidity when you need it. You can comfortably withdraw funds from your maturing FDs before the tenor ends. Here all you need to pay is a premature withdrawal penalty, which depending on the issuer can be 1% to 2% of the amount you are withdrawing.
Now that you have a basic understanding of fixed deposits, start investing in them smartly. To begin with, you can plan your finances by using the FD calculator. Try out different combinations of tenor and deposit amounts to arrive at the best maturity options. Weigh your goals and stagger your investment in FDs basis the maturity sum you want to access. Start small to yield bigger gains over time.