Fixed Deposit: A Combination Of Risk And Returns

Since many people are looking forward to a long-term investment, they always tend to neglect the medium term needs. It is a common suggestion by many advisors to invest for a long-term tenor as this can benefit with higher returns. The risk factor involved in short-term tenor is a bit more than long-term investments. However, the risk factor in the medium term is balanced.

Usually, people are seen to be hesitant about investments. One such reason this can be, the involvement of risk factor. However, not all investments involve high risk. Investments like fixed deposit offering a static interest rate are a considered to be a safe investment option. Although this investment avenue involves low risk, it still manages to offer higher returns in comparison to a savings account. You can say that fixed deposit is a medium term investment wherein both risk and returns are balanced. Whereas other investments options are concerned, although they offer a higher return, you cannot rely on them for safety. 

This medium term works according to your preference; this means that you are free to choose a tenure period you like. Usually, a tenure which gets matured between 5 to 10 years is counted as a medium term. Besides the tenure which balances your risk and returns, it is important that you also concentrate on your savings. You don’t want to end up paying taxes on the returns you earn.

Fixed Deposit

How to save some funds on fixed deposit?

Fixed deposits are great when you are looking for an investment option which provides you with both: high returns and safety. Although, you might have to spend a little on taxation if the interest offered by your financial institution exceeds over INR 10,000. To escape from this, you can either split the lump sum amount and invest it in different fixed deposit accounts or can apply for a tax deduction. 

When applying for a tax deduction, it is important to acknowledge that banks and NBFCs both may levy if you have not submitted your permanent account number. So, you must make sure to take all the precautionary measures to escape from taxation. Whereas, if you are charged tax for earning an interest amount over INR 10,000 then you can apply for a tax deduction. You can apply for Section 80C to escape from taxation. You can only get the tax benefit if the amount you invested is INR 1.5 lakhs or above.

Benefits to gain on fixed deposits:

Apart from the tax deduction and high returns, there are various factors that you can gain from by opening an FD account.

     Overdraft facilities:

As fixed deposits restrict fund withdrawal, you are only left with an option of breaking the FD account. The financial institution will charge you with a penalty as well as offer you a low rate of interest if you wish to open a new FD account in future. To avoid this situation, you can use the overdraft facility offered by fixed deposit, wherein, you can withdraw up to 90% of the amount from your account. You also are entitled to pay an interest rate on the amount you borrow as an overdraft. 

     Fixed deposit calculator:

The interest rate plays a very important role when it comes to fixed deposits. Thus, it is very important to know the interest amount you will be offered on your investment. To calculate the interest amount, you can use the FD calculator available on the website of your financial institution. You need to enter the investment amount, interest rate and the tenure in order to estimate the right interest amount.

These are a few things that you can benefit from when investing in a fixed deposit. Besides this, fixed deposit will help you to experience from both risk and returns which you cannot experience by parking your funds in a savings account.

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