Fixed Deposits offered by banks were among the most preferred and safest instruments for risk-averse people. People generally preferred such schemes and instruments because the safety of their capital mattered to them more than the returns, and the risk of loss of capital was almost negligible.
However, in recent times, interest rates offered by fixed deposits have plummeted to such an extent that many banks offer returns even lower than savings bank interest rates. This is evident from the interest rates offered by State Bank of India on fixed deposits, which range between 2.9% and 5.4% for varying tenures.
Even the highest interest rate offered by SBI (5.4%), hardly covers inflation. Eventually, it will depreciate investments on a relative basis due to the effects of inflation. The interest rates offered on fixed deposits are similar to those offered in 2004-05. This raises a significant question for those people looking for safe avenues of investment.
Non-Banking Financial Institutions, also known as NBFCs, offer fixed deposit schemes for the public. The NBFC Fixed Deposits offer interest rates that are comparatively higher than inflation and top lenders like SBI, ICICI, HDFC, Axis and other such banks. Therefore, they have an upper hand over these leading banks. Investors looking for the best return FD scheme may prefer to pursue FDs with NBFCs. However, before investing in fixed deposits, certain things should be kept in mind. There are two types of Fixed Deposits
- Cumulative Fixed Deposits: These are fixed deposits, where the interest is accumulated over the period of the deposit and returned to the investor along with the principal amount at maturity. This offers a compounding benefit to the investors as the interest is not just earned on the principal but also on the interest amount accumulated.
Those investors looking forward to growing their wealth with good interest rates can opt for NBFC Cumulative Fixed Deposits. Here, Shriram Finance FD also offers attractive returns starting from 7.53% per annum to 8.27% per annum over a varying period between 12 months to 60 months. This will speed up the compounding effect, leading to a higher maturity value.
- Non-Cumulative Fixed Deposits: These are fixed deposits where the interest, instead of being accumulated, is paid to the depositor periodically. Interest may be paid monthly, quarterly, half-yearly or annually depending on bank policies. Therefore, if you are looking for a great source of passive income, then you may prefer the NBFC non-cumulative scheme of fixed deposits. The Shriram Finance FD provides varying rest periods especially for non-cumulative fixed deposits, thereby enabling the depositor to decide the timing of passive interest income inflow.
There are monthly, quarterly, half-yearly and annual rest periods. Again, the tenure of fixed deposits ranges from 12 months to 60 months. The interest rate starts at 6.31% per annum here as well, but the cherry on the cake is that it can go up to as high as 7.75% per annum. These returns also exceed the returns of many of the government securities and schemes.
As everything is moving online, so are services provided by the banks to customers. Now, customers can create a fixed deposit online without any need to visit the bank. Also, if you fall into the senior citizen category, most banks will offer interest rates that are higher than the normal interest rates on fixed deposits. The difference may range up to 0.5%.
The reason is that older people tend to look for security. Therefore, the safety of investments is more important than the returns at that point in life. The Shriram Finance FD scheme offers a 0.50%* p.a. higher interest rate to senior citizens. This is applicable for those who have completed the age of 60 years on the date of deposit or renewal. Also, an additional interest of 9.40%* p.a. is offered to the depositors on the renewal of deposits after their maturity. For cumulative deposits, the maturity value itself can be renewed.
Fixed deposits also offer tax benefits, subject to certain conditions. If the investor makes a term deposit with any bank or financial institution for a lock-in period of five years, then the amount deposited is eligible for deduction under section 80C of the Income Tax Act, 1961. The maximum amount of deduction available is up to Rs. 1,50,000. Therefore, if you make a deposit of Rs. 1,50,000 in the fixed deposit for a term of 5 years, then Rs. 1,50,000 will be deducted from your gross total income while calculating your tax amount. The amount of tax savings will depend on the tax slab under which you fall, which may be 5%, 20%, 30%, etc.
Certain documentation is required before making a fixed deposit with any bank or financial institution. These include your KYC documents, i.e., ID proof, your address proof, photographs and a canceled cheque. However, the list of documents may change if the person is not a resident in India or is not a living person like a trust, Hindu Undivided Families (HUF) or any other entity.
Under the Shriram Finance FD, apart from resident individual persons, even non-resident individual persons, HUF, Body of Individuals (BOI), partnership firms, companies, unincorporated associations, trust and foundations can also invest, thus opening up the opportunity for a variety of persons.
If you are wondering how much your investment in fixed deposits can grow, you can use a fixed deposit calculator. To use a fixed deposit calculator, you just need to insert the principal amount invested and the tenure of investment. Some calculators may even ask for the rate of interest, which again will vary depending on the tenure of the fixed deposit. After you complete the above, you will get the maturity value of your fixed deposits. This calculator is useful for cumulative fixed deposits because the maturity receipts of non-cumulative fixed deposits involve the principal amount invested only.
Conclusion
If you are looking to invest in fixed deposits, then NBFCs or small banks are far more preferable than their bigger counterparts. The above-stated services and benefits offered by Shriram Finance give it an edge over most of the other banks. Also, it is advisable to not put all your money into a single fixed deposit. Instead, break it into 2-3 smaller fixed deposits so that if you ever face an emergency and you need to break your fixed deposit prematurely, then you need only break a single FD or two and not your entire investment.
