Having some net disposable income at the end of the month is definitely alluring. However small the amount be, additional funds at the end of a month is always welcome. Low interest funds in the savings account are of no use. You may also spend the funds. You are required to invest the amount so that you start accumulating wealth. The question therefore arises on how to invest safely and get stable returns? Investing surplus money is surely a journey in the right direction. Small investments start to gather moss over time and in the long run creates sizable wealth for you. For instance, you can invest in Shriram Fixed Deposit and earn interest rates as high as 9.20%* p.a.
If you are a risk-averse investor who wants to grow your wealth over some time but believes in a “safety first” policy, then you can invest in safer low-risk investment plans. If you are trying to choose between FD and liquid funds, it is advisable to gain knowledge on everything about them. This will help you to take an informed decision in achieving your financial goals.
What Is an FD?
Fixed Deposits are a widely preferred investment plan. Banks and Non-Banking Financial Companies (NBFCs) offer this investment option. In an FD, you basically deposit a certain lump sum amount at your bank or NBFC, which is held at the institution for a tenure chosen by you. During the time the money is being held, it earns interest at a fixed rate.
By investing in an FD you can get your money to work for you for a longer period of time and get steady returns. At the end of the tenure, the principal amount along with the interest is transferred to your bank account. You can open an FD account with tenure ranging from 12 months to a maximum of 5 years.
Invest now in Shriram Fixed Deposit,and you will get higher and guaranteed returns for a flexible tenure. You can also close your FD at times of emergencies. Calculate your returns online within minutes with the help of Shriram Finance Fixed Deposit Interest Calculator.
Salient Features of FD
Let's have a look at some of the salient features of FD:
Tax Implication
Interest that you earn on the FD is levied with tax as per your existing slab. The entire amount of interest that you earn as interest gets added onto your annual income and tax is charged on the cumulative income.
Tax Deduction at Source on FD
The tax that gets charged on the interest earned on an FD is the tax deducted at source (TDS). The concerned bank or NBFC that is holding the FD shall be paying the tax. The payment that will be made to you will be adjusted after tax.
A 10% TDS is deducted under the following conditions:
- The interest earned from the fixed deposit exceeds ₹5000.
- Form 15H or 15G haven't been submitted.
- The total yearly income is greater than ₹5,00,000 for senior citizens and ₹2,50,000 for resident citizens.
- PAN card details being submitted.
The TDS isn't applicable for FDs done in post offices. You are required to declare the details of the FD while filing your IT returns. If the interest earned on your fixed deposit is less than ₹5,000, TDS isn't applicable. You are advised to check with your bank or NBFC to know about their policies with regards to TDS.
Insurance Coverage
FDs are the safest investment option where your returns are guaranteed. Unless the bank, which is an almost non-existent possibility your principal and interest are safeguarded.
To cover the risk of a bank crashing, the Deposit Insurance & Credit Guarantee Corporation grants an insurance cover of up to Rs.5,00,000 on your deposit. This insurance coverage is not applicable for deposits with NBFC.
Loans Against Your FD
Many financial institutions offer a loan against the FD for their depositors if they would like to avail one. The nature of these loans is generally like an overdraft facility by marking a lien on your deposit. The loan tenure needs to be matching with the term of the FD and no premature withdrawal of the FD is allowed in these instances.
What Is a Liquid Fund?
Liquid funds are debt mutual funds without a lock-in period. The accumulated funds are re-invested by the issuer in fixed-income instruments like treasury bills, term deposits etc. These are short-term investments and you have the option of exiting without any foreclosure charges. You may expect to get an interest of around 8% which is much higher than a savings bank account.
Liquid funds may be useful if you want to park your funds for the short term. Note that returns are not guaranteed as in the case of FD. It is a moderately risky option where the returns are higher than bank instruments.
Liquid Funds vs FD – A Comparative Analysis
The table shows liquid funds vs FD comparison:
ComparisonFDLiquid Funds
Risk FactorOffers guaranteed incomeModerately risky as the external market forces guide the performance of a liquid fund
ROIThe average expected returns range from 7 to 10% with an NBFCThe average expected returns start from 6%
Tenure12 to 60 monthsThe maximum tenure is 91 days
Tax ImplicationThere are options for getting a deduction under Section 80C of the Indian Income Tax Act, 1961These are treated as debt funds. The interest is fully taxable as per your existing slab
Features of liquid funds
- The interest rates in a liquid fund are not fixed and changes based on market fluctuations.
- Interest rates in a liquid fund are higher than those in a savings account but lower than in a fixed deposit.
- Liquid funds attract annual fees ranging from 0.30% to 0.70%
Liquid Funds (LF) Vs Fixed Deposits (FD): Which Is Better?
The guiding factor that will decide FD vs liquid funds is your threshold limit of risk tolerance. If you are looking for a guaranteed income at the end of a predetermined period, FD is the investment option for you. The investment options of FD and liquid funds are in a way similar to one another. Both are preferred by risk averse investors. However, there are certain inherent differences between them.
You should understand the disadvantages of liquid funds as compared to fixed deposits, notably the low interest rates. As an investor, you need to carry out a thorough study before investing your cash. Invest now in Shriram Unnati Fixed Deposit which can earn you interest rates as high as 9.10%* p.a.
Key Highlights
- Fixed deposits offer a steady, guaranteed income albeit at a lower ROI.
- FD is most suited for investors with a low-risk appetite. You can claim tax deductions under Section 80C.
- Shriram Unnati FD provides additional interest benefit of 0.50%* p.a. for senior citizens and 0.10%* p.a. for women depositors.
- Liquid funds are moderately risky, have higher ROI and the interest earned is taxable.
FAQs
1.What is an FD?
FD is a lump sum investment that you make in a bank / NBFC where you get a guaranteed return along with the principal at the end of the maturity period.
2.What is a liquid fund?
It is a form of a debt mutual fund. The salient feature of a liquid fund is that it is a short-term investment of a maximum period of 91 days.
3.Between an FD and a Liquid Fund, which is an ideal investment option?
For an investor with a low-risk appetite, FD is a better choice as the returns are guaranteed, whereas there is a moderate risk in the case of a liquid fund.
