What is Fixed Deposit?

A fixed deposit (FD) is a financial instrument offered by banks and non-bank financial institutions (NBFIs) that allows investors to deposit a lump sum of money at a predetermined interest rate for a specified period of time. At the end of the maturity period, the investor receives the principal amount invested along with the accumulated interest.

Fixed deposits are considered a low-risk investment option as they offer guaranteed returns and are not subject to market fluctuations. They are a popular choice for investors seeking to secure their savings and earn a steady stream of income.

Why you should invest in FD?

1. Fixed returns : Fixed Deposits offer a fixed rate of return, which means you know exactly how much you will earn on your investment. This can be appealing to investors who are looking for a stable, predictable source of income.

2. Low risk : Fixed Deposits are considered to be a low-risk investment because they are typically offered by banks or other financial institutions that are backed by the government. This means that there is a lower risk of default compared to other types of investments.

3. Capital preservation : Fixed Deposits can be a good option for investors who are primarily focused on preserving their capital. Because they offer a guaranteed return, investors can be confident that their initial investment will be returned to them in full at the end of the term.

4. Liquidity : Fixed Deposits can be easily liquidated before the end of the term, although this may come with some penalties. This can be helpful for investors who need access to their funds in case of an emergency.

5. Tax benefits : Depending on the country, investing in Fixed Deposits may offer tax benefits such as tax exemptions or tax deductions. This can be a valuable consideration for investors looking to reduce their tax liabilities.

It's important to note that investing in Fixed Deposits typically offers lower returns compared to other types of investments such as stocks or real estate. Additionally, interest rates offered by Fixed Deposits may be lower than inflation rates, which means that the purchasing power of your investment may decrease over time. It's important to carefully consider your investment goals and risk tolerance before investing in Fixed Deposits. It may also be helpful to consult with a financial advisor or investment professional before making any investment decisions.

Who Offers FD in India?

1. Banks : State Bank of India, HDFC Bank, ICICI Bank, Axis Bank, Punjab National Bank, Kotak Mahindra Bank, Bank of Baroda, Canara Bank, IDFC First Bank, Indian Bank, and others.

2. Post Offices : Post Office Time Deposits (POTD) offered by the Department of Posts, Government of India.

3. Non-Banking Financial Companies (NBFCs) : Mahindra Finance, Bajaj Finserv, Shriram City Union Finance, and others.

4. Companies registered with the Reserve Bank of India (RBI) : Some companies registered with the RBI also offer fixed deposits to customers.

Types of Fixed Deposit :

1. Regular Fixed Deposits : These are standard fixed deposits offered by banks and financial institutions, where the interest rate is fixed for the entire tenure of the deposit.

2. Senior Citizen Fixed Deposits : These are fixed deposits designed for senior citizens, with higher interest rates and special benefits such as a waiver of penalty charges for premature withdrawal.

3. Tax-Saving Fixed Deposits : These fixed deposits have a lock-in period of 5 years and provide tax benefits under Section 80C of the Income Tax Act.

4. Flexi Fixed Deposits : These fixed deposits offer the flexibility to withdraw funds before the maturity date without incurring penalty charges.

5. Cumulative Fixed Deposits : These fixed deposits accumulate interest over the tenure and pay out the principal and interest together at maturity.

6. Non-Cumulative Fixed Deposits : These fixed deposits pay out the interest earned at regular intervals, such as monthly, quarterly, or annually.

7. Corporate Fixed Deposits : These fixed deposits are offered by non-banking financial companies (NBFCs) and companies registered with the Reserve Bank of India (RBI). The interest rates offered may be higher than those offered by banks, but they also come with higher risks.

Eligibility Criteria For Fixed Deposit :

1. Individuals : Any Indian resident individual above the age of 18 years can invest in fixed deposits.

2. Minors : Some banks and financial institutions offer fixed deposits for minors with the help of their parents or legal guardians.

3. Hindu Undivided Family (HUF) : HUFs can invest in fixed deposits as a separate legal entity.

4. Partnership Firms : Partnership firms can invest in fixed deposits by providing their partnership deed and other relevant documents.

5. Limited Liability Partnership (LLP) : LLPs can invest in fixed deposits by providing their incorporation certificate and other relevant documents.

6. Companies : Companies can invest in fixed deposits by providing their incorporation certificate, Memorandum of Association (MOA), and Articles of Association (AOA).

7. Trusts : Trusts can invest in fixed deposits by providing their trust deed and other relevant documents.

Limitation of Fixed Deposit :

1. Low returns : While fixed deposits offer stable and predictable returns, the returns are often lower compared to other investment options such as equity or mutual funds.

2. Inflation risk : Fixed deposits are not inflation-proof, which means that the returns may not keep up with inflation, resulting in a loss of purchasing power over time.

3. Liquidity : Fixed deposits have a fixed tenure, and withdrawing the funds before the maturity date may result in penalties and lower returns.

4. Interest rate risk : Fixed deposits are subject to interest rate risk since the interest rates offered by banks may fluctuate, resulting in lower returns if the interest rates drop.

5. Taxation : The returns on fixed deposits are taxable as per the individual's tax slab, which may result in lower returns after tax deductions.