Fixed Deposits are one of the safest investments that provide stable returns. It is the most preferred mode of investment, especially in India. However, if you are new to investments and are thinking of investing in FDs, you should know the below mentioned five rules:
1. Deposit Amount
You do not require heavy funds to invest in fixed deposits. You can open Fixed Deposit savings account with a small amount that can be as smaller as INR 1000. Certain banks and Non-Banking Finance Companies (NBFCs) provide the facility to open an FD account with a minimum deposit of Rs. 1000, while some of them allow it for higher minimum amount.
It is advisable that you invest more funds in a fixed deposit to get higher returns. You can estimate the amount of your returns before investment by using FD calculator. Bajaj Finance has provided FD Calculators on website to help the investors to make an informed decision.
2. Interest Rates
The interest rate at which you will get the returns on your fixed deposit investments is usually lower than the returns generated on other investment options. However, the security and tax benefits available while investing in FD nullifies the element of lower returns. While mutual funds or investment in stocks provides higher return, but there is always a risk of losses that can be incurred while investing in it. As compared to other banks and NBFCs, Bajaj Finance provides attractive interest rates, and higher interest rates if you are a senior citizen.
3. Tax Implications
The interests that you get from FD investment are liable for Tax Deduction at Source (TDS). If the interest earned from FD is more than Rs. 10,000, banks or NBFCs deduct 10% TDS on such interest incomes. In order to save your TDS, you can submit form 15G/15H that declares that your income is less than the taxable limit. However, if your total income lies below taxable income, you can claim refund by filling Income Tax Returns.
In the case of a joint FD account, TDS gets deducted from the PAN of the first account holder. Some people might think of investing in FD in the name of their child or spouse whose income are under exemption limit, however, the interest income from such investments would be clubbed into their income only.
4. Premature Withdrawal
Generally, banks and NBFCs charge a 0.5% to 2% penalty on premature withdrawal of FD amount. There are two major disadvantages of withdrawing your FD amount prematurely. The First one is that you cannot receive the full benefit of FD investments. Secondly, you also have to pay a penalty on the interest amount. Hence, you should not withdraw your FD holdings before its maturity unless and until it is a case of an emergency.
5. Loan against Fixed Deposits
During emergencies, when you need instant cash instead of withdrawing your holdings prematurely, you can avail a loan against your FD investment. Taking a loan against your FD account will help you get instant cash for urgent requirement without affecting your investments. You can get a loan amount of up to 75% of your FD investments; however, it depends on the banks or NBFCs in which you invested your money.