All about Fixed Deposits – The Fixed Income | Bonds & Fixed Income

As everyone knows, Fixed Deposits (FDs) are one of the most well-liked investment choices in India, and maintain a particular place within the hearts of all Indians, and for good purpose.
So, what precisely is a Fixed Deposits?

A fixed deposit or FD is an investment option the place you invest a lump sum with a bank, company, or NBFC for a specified period at a predetermined fixed rate of interest. The deposited quantity earns curiosity over the chosen tenure at a fixed fee. The rate of interest on an FD is fixed when the account is opened and isn’t subject to market fluctuations; so they supply predictable returns. FD holders have the flexibleness to obtain the curiosity both month-to-month, quarterly, half-yearly, or yearly, or it may be compounded yearly, as per their choice.

Fixed deposits are thought of a secure investment option as a result of they offer predictable returns with out the risk of capital loss. They additionally present a greater rate of interest than financial savings accounts till the maturity date, making them an engaging option for these searching for secure and predictable returns.

As per the SEBI survey, 95% of Indian households want investing in bank FDs as they don’t seem to be market-linked devices. An Indian invests an average of Rs. 4.25 lakh in Fixed Deposits—the numbers back this up too. According to Reserve Bank of India knowledge, FDs of personal sector banks have grown from Rs 39.52 trillion to Rs 33.43 trillion within the period from March 2023 to September 2023. Simultaneously, the term deposits of Public Sector Banks have risen to Rs 68.28 trillion from Rs 64 trillion during the identical period

Why select Fixed Deposits?

Why do buyers want Fixed Deposits?

Let’s break down why Fixed Deposits are a common selection amongst buyers.

1. Stability and Assured Returns: Fixed Deposits are thought of low-risk investments as they don’t seem to be subject to market fluctuations. They present predictable returns and the principal quantity stays secure. When you invest in stocks or some other devices, your returns depend upon the general efficiency of the markets. In distinction, fixed deposits offer assured returns as a result of their rates of interest are pre-decided, permitting buyers to precisely calculate and anticipate their returns. You don’t worry about your investments as you’re going to earn dependable returns in your investments. Therefore, Fixed Deposits present stability and security.
2. Flexible Tenures: FDs include a vary of tenure choices, sometimes starting from 7 days to as long as 10 years. Investors can select a tenure relying on their most well-liked investment horizon. 
3. Multiple Options: Both banks and NBFCs offer FDs with aggressive rates of interest, offering buyers with a big selection of decisions. This allows buyers to pick out an establishment that aligns with their financial objectives and liquidity necessities
4. Loan Against Fixed Deposit: Most lenders allow you to borrow funds towards your fixed deposits. In instances of pressing financial need, FD holders can avail of loans towards them. So, you would not have to interrupt the deposit prematurely, and on the similar time, you don’t lose out on curiosity income. 
5. Simple Application Process: Opening a fixed deposit account is a easy course of, sometimes requiring minimal documentation. This simplicity attracts buyers searching for a easy investment avenue, free from the complexities related to different devices.

Types of Fixed Deposits

Regular Fixed Deposits: 

These are essentially the most common sorts of Fixed Deposits (FDs) that offer a fixed rate of interest and a predetermined tenure. Investors can choose the tenure based mostly on their financial objectives and liquidity wants. If you’ve a restricted income and depend on the curiosity from bank deposits to your month-to-month bills, this sort of FD is good for you. You can obtain curiosity payouts both month-to-month, quarterly, half-yearly, or yearly. Thus, common FDs present stability and predictable returns.

Senior Citizen Fixed Deposits: 

These Fixed Deposits are designed for people aged sixty years or older, offering greater rates of interest in comparison with common FDs. These FD schemes offer an extra rate of interest of roughly 0.50% over the common charges. The tenures underneath this scheme are additionally versatile.

Flexi Fixed Deposits:

A flexi fixed deposit, because the title suggests, affords comfort and adaptability to clients. You can open an FD with an initial deposit of your selection and hyperlink it to your financial savings account. Moreover, you possibly can set a restrict to your financial savings account and if there are any extra funds, it is going to be transferred to the FD. Conversely, in case your stability falls beneath the restrict, the bank will liquidate a portion of your FD to take care of your stability. You have the flexibleness to withdraw or deposit funds within the account with out breaking your entire fixed deposit whereas incomes. These sorts of FDs are helpful during emergencies or when quick funds are required.

Cumulative Fixed Deposits:

In a cumulative fixed deposit, the curiosity earned on the principal quantity is reinvested and paid out along with the principal on the finish of the tenure i.e. the curiosity is compounded at common intervals and paid out together with the principal quantity at maturity. This sort of fixed deposit sometimes affords greater returns in comparison with common fixed deposits and permits buyers to maximise their general returns. They are perfect for people who need to reinvest the curiosity earned. You’ll additionally benefit from the ability of compounding, as the subsequent yr’s curiosity will probably be calculated on the principal plus the curiosity earned from the earlier yr.

Non-cumulative Fixed Deposits: 

In a non-cumulative fixed deposit, the curiosity earned on the principal is paid out at common intervals, reminiscent of month-to-month, quarterly, half-yearly, or yearly. This sort of fixed deposit is good for people who need a common income from their investments. However, the disadvantage of this fixed deposit is that you don’t get curiosity on curiosity.

What are Corporate Fixed Deposits?

Corporate fixed deposits are term deposits which can be offered by establishments reminiscent of non-banking financial corporations (NBFCs) and corporations that offer a fixed rate of interest for a specified length. Similar to banks, the RBI permits sure NBFCs to just accept deposits offering fixed rates of interest and tenures. These deposits are generally known as company or company fixed deposits. Corporate fixed deposits often span from a few months to a few years, offering a shorter investment horizon in comparison with another choices. Like bank fixed deposits, company FDs offer curiosity earnings and adaptability in selecting the investment quantity and length. 

How to decide on the correct Fixed Deposit?

1. Define your investment goal: Before investing in a fixed deposit, make clear your investment targets, whether or not they contain long-term financial savings, producing short-term income, or maximizing tax advantages.
2. Research: Conduct thorough analysis on totally different banks and financial establishments offering fixed deposits.
3. Compare rates of interest: Evaluate and evaluate the rates of interest provided by numerous banks and financial establishments.
4. Look for flexibility: Seek fixed deposits that present flexibility in phrases of tenure, curiosity payout choices, and provisions for untimely withdrawals.
5. Provider soundness: Before investing, it’s best to test the credit ranking and financial place of the financial establishment offering the fixed deposit.
6. Consider skilled steering: Consult with a financial advisor or investment specialist who can help you choose the correct fixed deposit that aligns together with your investment targets and risk tolerance.

Taxation on Fixed Deposits

The curiosity income from fixed deposits is subject to taxation. The bank deducts a certain quantity of tax from the curiosity income earned on a fixed deposit earlier than crediting it to the depositor’s account. It is then deposited to the Income-tax Department on a due date.

However, within the case of tax financial savings fixed deposits, you possibly can make the most of Section 80C to deduct Rs. 1.5 lakh out of your taxable income. But to qualify for this, you need to decide on a lock-in period of at the least 5 years. Other restrictions additionally include it. Therefore, it’s advisable to undergo the phrases and circumstances earlier than investing in them.

How is curiosity income calculated?

Banks deduct tax at source (TDS) on curiosity credited to your account if the curiosity exceeds Rs. 40,000 (Rs. 50,000 for senior residents). It’s noteworthy that TDS is deducted yearly on the finish of every year during the tenure of the FD, not essentially on the time of maturity. Investors whose complete income is decrease than the taxable restrict can submit Form 15G (for people) or 15H (for senior residents) when opening an FD to exempt themselves from tax deductions.

• If your age is 80 years or more: You can submit Form 15H provided that your taxable income is beneath Rs.5 lakhs. 
• If your age is between 60 and  80 years: As a senior citizen, you possibly can submit Form 15H provided that your taxable income is beneath Rs.3 lakhs. 
• If your age is much less than 60 years: If you aren’t a senior citizen, you possibly can submit Form 15G provided that your complete income doesn’t exceed Rs.2.5 lakhs

Conclusion

Summing up, fixed deposits offer a secure and secure investment option with assured returns and minimal risk, making it a superior option in comparison with different investment choices. Whether you’re saving for short-term objectives or seeking to diversify your portfolio, FDs present financial stability and peace of thoughts. Hence, opening a fixed deposit is a prudent resolution with the assorted choices which can be out there with The Fixed Income platform. So, why wait? Open your Fixed Deposit account with The Fixed Income now.

Disclaimer: Fixed Deposits is regulated by RBI.  Investments in debt securities/ municipal debt securities/ securitised debt devices are subject to dangers together with delay and/ or default in fee. Read all of the offer-related paperwork rigorously.

FAQs

Q1. Is FD tax-free?

Ans: No, FDs aren’t tax-free. However, it can save you tax in the event you go for tax-saving fixed deposits, the place you possibly can declare a deduction of up to Rs. 1.5 lakh underneath part 80C of the Indian Income Tax Act, 1961.

Q2. Can I withdraw my FD prematurely?

Ans: Yes, you possibly can withdraw your FD prematurely.

Q3. Is there a most quantity in Fixed Deposit?

Ans: Usually, there may be no most quantity in Fixed Deposits however you possibly can test together with your financial establishment if there may be any cap on it.

This autumn. Can I hyperlink my financial savings account with my FD?

Ans: Yes, with Flexi Fixed Deposits, you possibly can hyperlink your financial savings account with FD.

Q5. Is there any particular rate of interest for senior residents on Fixed Deposits?

Ans: Yes, senior residents are provided an extra markup fee of 0.05%. However, this markup is on the discretion of the bank.

Q6. Is it doable to avail loan towards Fixed Deposits?

Ans: Yes, it’s doable to avail loan towards Fixed Deposits.

Q7. Can NRIs open Fixed Deposits in India?

Ans: Yes, NRIs can open Fixed Deposits in India. Many banks offer curated FD schemes for NRIs, catering to their individualized wants