An Introduction To Fixed Deposits And Its Features

The Fixed Deposit scheme is one of India’s most popular investment tools. FDs are the most suitable investment option for investors who are more concerned about assured Return than the Return on investment. The fixed deposit interest rates depend on the investment value and the lock-in period you select for the deposit. You can opt for cumulative or non-cumulative returns. FDs can fetch easy loans at the lowest interest rates to meet your exacting cash needs. You can even consider pre-mature withdrawal, fully or partially, on payment of penalty. Income tax is applicable to the interest you earn from a fixed deposit.

What is a Fixed Deposit?

A perfect FD meaning is a lump sum investment for a predetermined lock-in period. Banks and Non-Banking Financial companies accept such deposits from individuals and organisations for certain tenures, paying interest at a predetermined length for the entire tenure. The depositor can claim the interest or decide to reinvest the deposit, taking a cumulative payout along with the principal. You will have the option to reinvest the principal on the maturity of the initial lock-in period. The investment tenure can vary from a few days to a few years, spanning a maximum of 10 years.

Assured Return is what makes FDs the most popular investment choice. 

What appeals more to investors than the fixed deposit interest rates is the assured Return. In other words, one investment cannot depreciate in principal during and after the investment tenure. Depending on the length of the investment tenure and the investment value, banks and NBFCs will pay you interest at an average rate. The interest rate shall not change unless the RBI declares changes in the lending rate. As per your fund value and the lock-in period, you will know the Return on completion of the investment period.

You can decide the lock-in period of the fixed deposit as per your choice. 

The flexibility of FDs lies in the fact that investors are free to decide the lock-in period as per their choice. For instance, you can invest it for as low as 7 days to a maximum span of 10 years. Once the investment tenure matures, you may consider reinvesting the fund. The receivable interest shall depend on the length of the tenure you select and whether you opt for cumulative or non-cumulative returns.

You can avail of loans against your FDs. 

FDs can serve as collateral for taking a loan. You can avail up to 90% of the investment value as a cash loan. These loans come at the lowest interest rate, and you can expect the fastest disbursal on simple terms and conditions. Thus, you can easily meet your exigent cash need. Alternatively, banks and NBFCs are happy to grant Credit Cards against fixed deposits, even if you are a bad credit customer. It allows you to retain your investment and not withdraw it at a pre-mature stage. You may approach Bajaj Finserv for such cash loans.

Indian investors being conservative for generations have always been happy with investment tools that feature the minimum investment risk. In that regard, nothing has been more popular among them than the Fixed Deposit. Even if the fixed deposit interest rate is not as high as the Return from mutual funds or stock, it still produces a reasonable yield. So if you are not in a position to shoulder major investment risk, fixed deposits with banks and NBFCs are the best investment option.

Read Also: Asset Finance And Its Benefits

You may withdraw your Fixed Deposit fully or partially at a premature stage. 

One of the best parts of FDs is that it offers high liquidity. Should you urgently need money, you can withdraw the deposit completely or in parts at a premature stage. However, you are likely to pay the penalty for such a premature withdrawal. It is perfectly suitable for individuals who do not want to get into debt traps. The penalty you pay for premature withdrawal is significantly lower than what you have to pay as interest for taking a loan against your Fixed Deposit.

Though you cannot ignore that FD seeks the lowest Return on investment, it is still a good choice, especially if the investment involves your lifetime savings. It even brings diversification to your investment portfolio, as the assured Return will mitigate the losses incurred on more volatile investments. As such, getting a Fixed Deposit in your name is certainly a good move.

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