The stable and secure returns of a Fixed Deposit (FD) are an attractive feature for many. You could book an FD to meet different goals. It could range from saving for your child’s education or building a retirement corpus. The varied interest payout options also give you flexibility over your investment.
This means, you could choose wealth accumulation over a longer tenor. Or, enjoy a stable income stream with periodic interest payments.
Understanding Fixed Deposit
Knowing how an FD works is crucial before you book one. Here are some crucial points on how these deposits work:
- You can choose a tenor ranging from one week to ten years
- You can compare highest FD interest rates across issuers
- You get guaranteed returns throughout the term at predetermined interest rates
- You can choose to get the fixed deposit with monthly interest payout at regular intervals or maturity
The interest rate you receive depends on various factors. It includes the investment amount, period, investor type, and the current repo rate.
How Fixed Deposits Help Enhance Your Wealth
Investors of different risk appetites prefer this investment owing its benefits. Here are some features and advantages that could help with your investment:
Stable Returns
FDs are not subject to market fluctuations. This means that the interest depends on the rates determined at the time of investment. As such, it remains the same throughout the tenor. It allows you to determine the returns you can expect beforehand.
If you have a specific goal, you can choose the investment terms accordingly. It may help ensure you accumulate enough funds. You could get the best FD rates in India by exploring and comparing various issuers.
Security of Capital
FD issuers are rated by credit rating agencies like CRISIL, ICRA, and CARE. The rating helps you understand how safe your investment is. You can check this before investing to help you make a well-informed decision.
Look for those with a higher rating as it indicates greater safety. It assures that the issuer will fulfil its obligations on time. In addition, the Deposit Insurance and Credit Guarantee Corporation (DICGC) insures bank FDs. DICGC offers up to ₹5 Lakhs per depositor in a bank.
Liquidity
Many issuers allow you to withdraw from the FD before the end of the tenor. This is also known as premature withdrawal. With this facility, you can access funds when needed without breaking the FD.
But this option may come with a penalty, which can mean diminished returns. So, check and compare this before choosing. Doing this will enable you to keep your costs low if you need to withdraw before the maturity date.
Tax Benefits
When you invest in an FD, you can get tax benefits under Section 80C of the Income Tax Act of 1961. You can claim a tax deduction of up to ₹1.5 Lakhs in a financial year, which will help lower your tax liability. With this added savings, you can invest in other avenues and meet your financial goals easily.
Remember, tax-saving fixed deposits have a lock-in duration of 5 years. You can open such types of fixed deposits with banks.
Eligibility Criteria and Documents Required
Before investing, find out the eligibility criteria set by the FD issuer. It will help ensure you have a seamless application process. Generally, any one of the following entities can open an FD account:
- Resident Indian citizens
- Non-resident Indians (NRIs)
- Hindu Undivided Families (HUFs)
- Partnership firms
- Associations
- Clubs, societies, and trusts
- Public or private companies
- Sole-proprietorship businesses
Once you confirm that you can invest, keep the following documents handy:
- Passport-size photographs
- Identity proof such as PAN card, Aadhaar card, driving licence, passport, voter’s ID card, etc.
- Address proof such as an Aadhaar card, passport, driving licence, voter’s ID card, utility bills, property deed, rent agreement, etc.
Remember, the above-mentioned requirements are general and may vary depending on the issuer.
Although FDs are a comparatively safer investment option than other avenues, it’s essential to research thoroughly before you invest. This will enable you to choose an option that helps you accumulate the required funds. You should also consider diversifying your portfolio based on your risk tolerance and goals to mitigate risks and maximise gains.
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