With unpredictability and volatility becoming the norm of the day in the stock market, many investors have been put off with such an attitude, and have begun looking for other reliable sources of investment. With the inflation moving into an easing stage, people have begun to understand the pros of the all-time favorite mode of investment – fixed deposits. Fixed deposits are the best and safest bet for investors who seek assured and risk – free returns irrespective of the volatile market conditions. The process of investing in a fixed deposit is quite simple too. All you have to do is deposit your money in a fixed deposit and forget about it until the date of maturity arrives. There is little or no scope of you losing money at all in such a scheme due to the constant and regular vigilance of the central bank of the country, the Reserve Bank of India. With the market witnessing quite a turbulent stage, people have begun to find their way back to the investment adage of the yesteryears – the humble fixed deposit in banks. What more? With fixed deposits, you can also acquire a loan from the bank for approximately 90% of the amount saved in the fixed deposit which has a comparatively lower rate of interest than the conventional loans.
Before you invest your funds in a fixed deposit, conduct extensive research on the interest rates offered by various banks. After conducting a comparative analysis on which banks offer a desirable interest rate, look for a tenure that best suits your needs. For instance, in some fixed deposits, you need to deposit your money for a period of 5 years while in some banks the tenure may be for 10 years. There can also be a slight variation in the interest rates offered by different banks for different tenures or periods of deposits. The method of calculating the rate of interest can vary as some banks may calculate the rate of interest on a quarterly basis, half-yearly, annual or on the entire period of maturity. In order to avail the maximum benefits with fixed deposits, it is best to split your investments. This is usually done to avoid the tax deductable as source or TDS. If your interest exceeds Rs. 10,000 annually, then TDS of 10% is applicable on your fixed deposit. In order to avoid and skip such a tax liability, it is best to split your investments in fixed deposits. You need to open fixed deposits in the different branches of the same bank, thereby limiting your interest earned, which should ideally be shown as less than Rs. 10,000 in one single branch. You could do the same exercise by opening fixed deposits in different banks as well. Your TDS is skipped as it is a tax liability that is charged in one branch of a bank and so on. Also, in case of a contingency or during a financial emergency, where you need to withdraw funds from your fixed deposit, by splitting your fixed deposits, you do not hamper the entire purpose.
The interest that is gained from your fixed deposit can either be withdrawn or you can choose to reinvest it in the same scheme. If you would like to withdraw your interest amount, then it will be credited directly to your savings account that has been mentioned by you on its receipt. However, if you choose to invest that interest amount, then you will have the added advantage of earning interest which will always be higher than the previous year’s rate of interest. On withdrawal of interest, you will be subject to the same rate of interest as last year. You can also opt to invest your funds in tax saver fixed deposits. As the name suggests, apart from the benefit of assured returns, you will be exempted from taxes under Section 80C of the Income Tax Act 1961. Although you will be subjected to TDS, you will be able to generate more returns than you would ever make with a regular fixed deposit, due to exemption of taxes.