Your investment portfolio needs to have a fixed deposit as an element.
Think it’s uncool? Well, we’re going to debunk some myths and shed some more light on why you should invest in FDs!
So let’s begin by knowing what FDs are!
A fixed deposit, often known as an FD, is a type of investment offered by banks and non-banking financial firms (NBFCs). People invest a set amount of money in an FD for a set period at a predefined rate of interest. The rate of interest varies by the banking institution, although it is typically higher than the rate of interest paid on savings accounts.
Fixed deposits are available for a variety of periods, ranging from 7-14 days to 10 years. A term deposit is an alternate name for a fixed deposit.
Types of Fixed Deposits
You might’ve heard of the saying: “Good things always come in pairs”. When it comes to fixed deposits, you get more than two options!
Here are your choices when it comes to investing in FDs:
Cumulative Fixed Deposit
A cumulative FD pays the interest and principal at the end of the term. Every year, the interest is reinvested. This means that instead of receiving periodical interest payments, you will receive a lump sum after the FD term.
If you don’t require a steady stream of income, the cumulative FD option can be right for you. You will also profit from the power of compounding with this option, as the following year’s interest will be based on the previous year’s principal plus interest.
Non-Cumulative Fixed Deposit
Non-cumulative FDs will pay you interest regularly. Depending on your needs, you can receive interest payments monthly, quarterly, half-yearly, or annually. This will provide you with a steady source of revenue. Non-cumulative FDs, on the other hand, have the disadvantage of not earning interest on interest.
This type of fixed deposit is offered to the customers having a savings account, by the banks. Generally, the interest rates are lower than that offered by the NBFCs.
This fixed deposit can be availed by NRIs, OCIs, and PIOs with NRO accounts. It has a fixed tenure, with a higher rate of interest than a traditional bank account.
Tax Saving FDs
By availing this fixed deposit, you can get tax benefits of up to INR 1.5 lacs. The lock-in period is of five years, and after that, you can withdraw your FD.
Senior Citizen FD
This fixed deposit is available to people who are 60 and above. They get higher rates of interest than normal, with flexible tenure.
These FDs have fixed tenure, with predetermined rates of interest. They offer higher interest rates than a saving account, and the tenure is from a mere 7 days to 10 years.
How does an FD work?
The money placed in a fixed deposit account is locked up for a set period, during which a customer deposits money every month and earns interest. Customers can invest for a period ranging from seven days to ten years with banks.
After the maturity period, the money can still be invested for the specified term. Customers are not permitted to withdraw funds before maturity; nevertheless, if funds are withdrawn before maturity for whatever reason, a penalty must be paid.
The bank credits the entire amount, plus interest, to the customer’s bank account when the FD matures. It’s also a good idea to keep in mind the following points:
Who should go for Fixed Deposits?
The eligibility rules for investing in fixed deposit schemes are liberal, and anyone can invest in this financial instrument.
The following people should invest more in fixed deposits:
Inexperienced investors: Fixed deposit schemes are a simple way for investors with little or no experience in the financial markets to reap the benefits.
Risk-averse investors: Fixed deposit investments provide major benefits to investors who are hesitant to undertake hazardous investments and wish to preserve their wealth.
Bottom of the line
Fixed deposits will always give a safe avenue to reap simple and regular income, whether you are an inexperienced investor or a seasoned investor trying to manage the risk of a varied portfolio.
Start investing today by booking a fixed deposit with FinMapp!