Fixed Deposits
Fixed Deposit (FD) Investment: A Safe and Secure Option
A Fixed Deposit (FD) is one of the most traditional and reliable investment options
offered by banks and financial institutions. It allows individuals to deposit a lump sum
amount for a fixed tenure, ranging from a few months to several years, at a
predetermined interest rate. The main advantage of an FD lies in its safety and
guaranteed returns, making it a preferred choice for conservative investors.
Unlike market-linked investments, FDs are not subject to market volatility, which
ensures capital protection. Interest earned on FDs can be received at regular intervals
or at maturity, depending on the investor’s preference. They are especially beneficial
for individuals seeking a stable and risk-free source of income. Moreover, certain FDs
also offer tax-saving benefits under Section 80C of the Income Tax Act. Overall, fixed
deposits are ideal for those looking for a secure investment with assured returns and
minimal risk over a specified time frame.
Key Features of Fixed Deposits:
1. Safety of Investment:
FDs are regarded as one of the investment options with least risk. In India, they come under the Deposit Insurance and Credit Guarantee Corporation which covers a deposit of up to ₹5 lakhs in case a bank faces a financial crisis.
2. Guaranteed Returns:
Fixed deposits come with fixed interest rates, thereby offering guaranteed and predictable returns. This feature makes FDs attractive for conservative investors as the amount remains intact and is risk free.
3. Flexibility in Tenure:
Fixed deposits have flexible tenure options. One can invest for a short term (starting from 7 days) to a long term (up to 10 years) depending on financial goals. A longer investment period tends to earn higher interest rates.
4. Interest Payments:
For certain fixed deposit accounts,interest payments can be scheduled for disbursement on a monthly,quarterly,or maturity basis. Such flexibility would be helpful for those investors who wish to receive interest payments at times.
5. Tax Implications:
Any income earned through a fixed deposit is taxed, and tax deduction at source is applicable if the income exceeds ₹40,000 in a year (applicable to people below age of 60). With respect to TDS, investors have the option of receiving interest on a cumulative basis. Tax is deducted upon payment.
6. Premature Withdrawal:
In case you wish to access funds before the maturity date, most banks provide services for the premature withdrawal of fixed deposits. These services may come with some penalties or a reduction in interest payment by a small percentage.
For investors seeking security and low risk, Fixed Deposits (FD) remain a highly sought after investment product. Be it for achieving a future goal or as a shield to store one's funds, FDs provide a sense of safety and assurance as they guarantee interest returns while ensuring the principal amount is intact.
Frequently Asked Questions