Fixed Deposits (FDs) are the safest and most preferred investment option available to those averse to investing in risk instruments such as equity and mutual funds. FDs allow you to manage your financial risks and help fulfil your goals aspired for different stages of your life. These could involve securing your child’s future, his or her education and marriage, or as a hedge against unexpected expenses. Such deposits are also a smart way to build savings over a period of time.
Here are the important things to know before investing in FD:
Safety
FDs are secured investments that offer assured returns. Fixed deposits offered by corporates and HFCs are rated by credit rating agencies, so that investors can choose wisely. If you are planning to invest in a corporate FD, always go for corporates that enjoy high ratings like ‘AAA’ or similar.
Minimum Deposit
many companies have different minimum and maximum deposit amounts. It is advisable to check with the company before investing. At PNB Housing, the minimum amount that can be put in fixed deposit is INR 10,000.
Read more – 5 THINGS TO LOOK FOR IN A COMPANY FIXED DEPOSIT
Tenure
most corporates offer deposits for a period anywhere between 1 year and 10 years. Choose your tenure carefully, as premature closure of an FD attracts a penalty that will reduce the total interest earned on your deposit. For example, if you think you need the money after two years, then make sure you invest for a period of two years or less.
Interest Rate
corporates offer fixed deposit schemes that pay interest on cumulative and non-cumulative basis, depending upon the choice the applicant makes. Customers looking for a regular income on monthly, quarterly, half yearly or annual basis can opt for non-cumulative schemes. For investors looking for savings and return earned over a long period of time can choose cumulative schemes where both the principal and accumulated interest are paid on maturity. The rates of interest are subject to change at the sole discretion of the company. The fixed deposits which are offered by corporates and HFCs usually carry a higher interest rate than the bank fixed deposits
Nomination
always exercise the nomination option in FD, more so if you are the sole depositor. In the event of the death of the depositor, the nominee can claim the entire sum with interest.
Tax Deduction at source (TDS)
the interest income from a particular corporate fixed deposit is more than INR 5,000, and then the company has to deduct tax at source beyond that amount. Thus, the limit for a TDS of a HFC is INR 5,000.
Advantage for senior citizens
corporate fixed deposits are a good investment option for senior citizens as they give them safe returns with an alternative of regular income, in their retirement years. Interest rates offered to senior citizens are generally 0.25% higher than the standard rates offered.
For all of these reasons, fixed deposits are a safe and strategic investment that serves the twin goal of providing regular income and building a corpus — with little or no risk to investors.
