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It is always advisable to take some risks with your investments to maximize returns and help your money grow at a quick rate. However, these investments must be balanced with sound, risk-free schemes which will give you security and financial stability in the future. Such schemes are those that will help you set aside part of your savings so that you can be sure of returns after a period of time. The most prominent scheme in this category is a fixed (term) deposit.
A fixed deposit is an investment account which is opened for a stipulated period of time by depositing a certain amount of money. The money with which this account is to be created is a fixed, one-time deposit which then attracts a fixed rate of interest depending on the amount of money and the tenure for which the account has been created.
With assured returns, a fixed deposit is considered as one of the safest investment options in the market. You can also choose to collect your income, from the interest accrued on the deposit, according to your convenience on a monthly, quarterly or annual basis.
In today’s dynamic world of credit purchases and high-risk investments, having a contingency plan when unexpected expenses creep up on you is always a good idea. A fixed deposit account is an ideal way for you to guarantee a constant mode of income by managing your expenses and using those savings wisely. Following are certain benefits you could enjoy by investing in fixed deposits –
1. Get Assured Returns
The popularity of fixed deposits as an investment tool is because it is an instrument which assures the safety of your principal deposit and does not depend on market forces when it comes to generating a return on the deposit. Being governed by the Reserve Bank of India’s rules and regulations, fixed deposits are risk-free investments where your money remains safe and continuously attracts the same amount of interest until its maturity, irrespective of the prevalent economic conditions.
2. Grow Your Savings
Fixed deposits are a great tool to encourage you to save money, and to help you grow your savings. Ideally, to gain maximum benefits from FD, you should not prematurely withdraw your deposit, or break the fixed deposit. This helps you inculcate a habit of saving money. You may also deposit a small amount of money, which then enables you to avoid superfluous expenditures. This is a great incentive to set aside money and plan your finances more responsibly.
A fixed deposit also offers a substantially higher rate of interest on your investment as compared to depositing money in a savings account. Since you may use a savings account for transactions, the balance amount in that account is likely to fluctuate and attract even lesser returns. This does not happen in case of a fixed deposit, as a result of which your money has the potential to earn a lot more from it.
3. Flexibility
Fixed deposits afford a great deal of flexibility in terms of tenure as well as collection of income.
As far as tenure is concerned, you could choose any term, from as little as 7 days to a maximum of 10 years, for the maturity of your scheme according to the manner in which you have planned your finances. This is one of the most reassuring features of this scheme as you may benefit from your investment while ensuring liquidity at the same time.
When your investment attracts interest, you also have the choice of when to collect it as per your requirement. You may choose a scheme whereby the income earned from the interest could be collected on a monthly, quarterly or annual basis, if at all. You may also choose not to collect it and reinvest the interest to benefit from the effect of compounding and help your money grow faster.
4. Raise Loans and Improve Credit Scores
You may apply for loans against your fixed deposit as it is considered to be a form of assurance with the bank. You may avail up to 90% of your fixed deposit amount as a loan.
You may also enjoy credit card and overdraft services of up to a certain percentage of your fixed deposit amount from the bank, without providing your credit score or any form of security. This enables you to start building a good credit score on the basis of which you could apply for loans in the future.
This is an ideal scenario as you continue to earn interest on the fixed deposit while also being able to provide security to avail a credit card against that amount. Additionally, you get to use this as a go-to option or a security net in case of unforeseeable circumstances or any losses suffered professionally or personally.
5. Claim Tax Benefits
If you choose to open a tax saving fixed deposit account, you could save money by enjoying a tax deduction on your investment. You could open such an account with a deposit ranging from INR 100 to INR 1.5 lakhs. Though the interest on your deposit is subject to taxation according to your tax slab, the entire principal amount is likely to be exempt in such fixed deposits. Under Section 80C of the Income Tax Act, you are entitled to claim tax benefits of up to INR 1.5 lakhs per year by making investments in fixed deposit accounts.
However, a tax saving fixed deposit requires a lock-in period of at least 5 years and does not allow you to avail loans or credit against this account. So, you must be prepared to put away the principal amount for that period without feeling the need to withdraw it before its maturity in order to benefit from it.
6. Meet Future Financial Goals
You could create as many fixed deposits as you like, and use them to fund major life events. You could achieve all your financial goals and meet financial obligations by ensuring that your fixed deposits mature around the time when you would need the money. You could open accounts in your own name, across various banks or jointly with your spouse or other family members in order to cater to all your financial requirements.
All posts by ANAND BHIDE
5 Rules to know about if you are planning to invest in Fixed Deposits
Fixed deposit (FD) is the most common financial instrument known to and used by every investor. FDs are popular due to two main reasons: (1) safety of capital and (2) surety of returns.
Moreover, fixed deposits or term deposits have more liquidity as compared to other investments. In case of urgent requirement of funds, you can visit your bank and withdraw the money. Few banks also offer the facility of online closure of fixed deposits.
Although fixed or term deposit is quite a popular financial tool, there are few things unknown to most investors. Here is a list of 5 rules that you as a depositor should know if you plan to invest in fixed deposit:
1. Types of fixed deposit: There are two types of fixed or term deposit:
(i) Traditional Fixed Deposit: The capital is invested for a specific tenure. The interest paid is monthly, quarterly, or yearly as specified by you. Hence, it is also known as a non-cumulative plan.
(ii) Cumulative Fixed Deposit: The interest on the capital is compounded and the amount is reinvested for the desired tenure. The interest is paid when the term deposit matures. This way you earn an interest on interest.
2. Taxation: Most people have a misconception that the interest earned on fixed deposit is tax free. The truth is, interest income up to Rs. 10,000 per annum from a fixed deposit is exempt from tax. Deposits that earn interest of more than Rs. 10,000 per annum are liable for a 10% TDS (tax deducted at source) on the interest amount. In case your PAN is not updated in your account, then you will be charged 20% TDS.
There are people who open fixed deposit accounts in the name of their non-working spouse or minors to avoid TDS. The truth is: The interest on such deposits is also included in the interest income. You can submit Form 15G/H in your bank if your total income falls in the basic exemption tax limit. If you have not submitted 15G/H or PAN, you can claim refund later.
3. Premature withdrawal: There are no free lunches in the world, and this is true with fixed deposits, too. Although you can withdraw your funds from fixed deposit as and when required, it comes with a penalty varying from 0.5% to 1% depending on your bank’s policy. Also, the interest rate applicable on your deposit is for the duration when the funds were with the bank and not the pre-decided rate on your fixed deposit.
4. Return on investment: Fixed deposit yields a higher interest rate than savings account, but the return on investment and inflation rate may vary in the longer run. Unlike other financial instruments, capital from fixed deposits is not invested in the stock market, so the funds are secured but yield lesser returns. So, we recommend investing in fixed deposit for a duration of not more than 2 years.
5. Loan against fixed deposit: You can avail loan or overdraft facility on your fixed or term deposit. You can get loan up to 85–90% of the total fixed deposit value. The loan can be renewed along with the fixed deposit. The rate of interest on loan against fixed deposit is usually 2% higher than the interest rate on your fixed deposit. There is no processing fee or prepayment charge on this loan or overdraft facility.
Given these factors, you should not think twice before investing in a fixed deposit. So, visit your nearest branch today to start your fixed deposit.
5 Questions To Ask To Know If You Are Saving Enough For Retirement
In a world of instant gratification, with an increasing trend towards credit purchases, the importance of saving money must not be lost. In a scenario where our monthly salaries are spent in repaying credit card bills and EMIs, savings tend to take the back seat, which is harmful to the prospect of financial security in the future.
It is very important to take control of your finances and save money for when it is actually required, instead of spending it on non-essential requirements. Not only is it prudent to set aside money in order to have sufficient funds to fall back on in case of an emergency, having financial security when you stop working is of utmost importance. You must take appropriate steps as early as possible to ensure that you enjoy the golden years of your life to the fullest and are comfortable in retirement.
While a happy and stress-free life after years of hard work is what everyone wants, a proper plan is required to make this a reality. You must start saving and allowing your money to grow sufficiently to meet your financial needs in the future. Not only must you have a retirement fund, but it is also important for you to plan your finances such that that fund has enough money to meet the requirements of the time when you will retire. Even if you have started saving and have a plan, you must review it to know whether the amount of wealth you are creating for retirement will be enough to sustain a comfortable life in the future. To understand whether you are saving enough money for your retirement, you just need to ask yourself these simple questions –
Have I Planned My Future?
Unless you have a realistic plan for your future, it is difficult to work towards it. Everyone has different dreams and expectations from life, and you have to know what you want in order to achieve it. Once you have an idea of the kind of retirement you want, when you want to retire and the things you want to do after that, you could start setting aside money to achieve those goals. You must factor a realistic retirement age and project a probable lifespan in order to work towards setting aside your retirement fund accurately. Lifestyle expenses and monthly expenditures that come along with the kind of retirement you choose must also be factored in carefully. Estimating post-retirement expenses is the most important step in financial planning.
Have I Already Started Saving?
The ability to save money is a skill which must be developed from an early age so that you can optimize your resources and provide for the best possible future. Living from one paycheque to the other could get you into a lot of trouble in the future. Ideally, one should start saving from the first day of work, but in case you have not, it is never too late to change your lifestyle and work towards securing your future. Though it is easier said than done, cutting down on unnecessary expenses, setting aside extra earnings and staying clear of incurring debts as much as possible would assure greater savings. To be able to reduce expenses and allocate more resources towards savings, planning and budgeting are a must. Though planning may seem tedious, a little effort and a time investment of a few days could help you identify the flow of your money, your spending patterns and in turn facilitate the plugging of unnecessary expenditure. If you stick to the plan and maintain a budget, there will be a marked growth in your savings. By investing this money sensibly and paying off dues at the earliest opportunities, you could be able to build sufficient resources for the retirement fund.
Have I Kept Inflation Rates in Mind?
You must keep in mind the rate of inflation while calculating your expenses post-retirement. It is much more prudent to assume a high rate of inflation and be cautious than to assume a low rate and get into trouble in the future. So when you calculate the value of your savings, by assuming approximately 8% CAGR you should be on the safe side. If the inflation is lower than the rate you based your plans on, the more you have as savings in the future.
Where Should I Invest My Savings?
When it comes to investments, a balance between risk-free investment schemes and opportunities with a scope to maximize your returns is usually a sound way to go. While the latter requires enhanced knowledge, and understanding of the functioning of the money market, the former is a much more secure option for you to trust your money with. The most prominent among these schemes are fixed deposits (FDs). FDs are a simple and safe solution for you to invest a certain amount of capital over a few years and earn an assured income through the interest it generates. This is the ideal way to set aside funds and create wealth to achieve long-term financial goals. If you do not have much concerning savings and are looking to make smaller deposits over a period, recurring deposits (RDs) could be more beneficial to you. This scheme requires you to make regular payments in monthly instalments over a certain period and attracts an interest at a rate determined by the monthly remittance and duration of the scheme. Just like FDs, RDs are also a safe investment option with guaranteed returns.
Additionally, it is important to make slightly risky investments where you place a part of your savings to grow at a better rate and help beat inflation. A profile which allocates money towards equity shares along with safe investment is likely to benefit you in the long run.
Do I Need To Consult An Expert?
It is always advisable to seek the assistance of a professional who is in a position to help you plan your savings or just to give you a better understanding of the investment tools in the market which suit you best. You could always do your own research, take tips from others and chalk out a plan, but consulting an expert for such an important aspect of life might not be a bad idea.
What Is EMI And How Is It Calculated?
With the increasing cost of living and high inflation, it has become challenging to make significant purchases without putting strain on the household budget. Loans offer a way to fulfill our dreams by providing funds for buying a range of products. There are variety of loans such as home loan, car loan, personal loan, two-wheeler loan, and more. While getting a loan has become easier than ever, it is essential to understand the basics of borrowing before deciding to take a loan
The most critical aspect of a loan is the repayment process, which involves paying fixed monthly installments known as EMIs over a specific period. The value of an EMI varies based on the loan amount, interest rate, and tenure.
The two primary components of an EMI are the principal amount and the interest charged on it. While the interest component accounts for a more significant portion of the EMI during the initial stages, the contribution towards repaying the principal loan amount becomes more significant as the loan tenure progresses.
By using a loan amortization schedule, which breaks down each EMI payment into principal and interest components, you can keep track of your loan payments and reduce the cost of your loan. The schedule provides information on the outstanding loan amount, the time period of each payment, and the interest and principal amount to be repaid. You can use this information to refinance your loan or opt for pre-closure, which is advisable in the early stages of the loan tenure.
Personal Loan EMI Calculator
If you are to calculate personal loan EMIs, a simple mathematical formula can be used that considers the principal amount, interest rate, and tenure.
EMI = P x R x (1+R)n/ (1+R)n-1
Here:
P is the Principal Amount,
R is the Rate of Interest, and
n is the Tenure in months
However, the exact EMI amount might vary slightly depending on factors such as floating interest rates, which are determined by prevailing market rates, and prepayments that reduce the principal amount and the interest charged on it.
The EMI feature of loans allows for convenient monthly payments and enables you to choose a loan amount and repayment scheme that suits your resources. By understanding the basics of EMIs and using a loan amortization schedule, you can make informed decisions about loan repayment, reduce the cost of your loan, and achieve your dreams without disrupting your household budget.
IndusInd Bank offers instant personal loans at attractive rates of interest. You can easily apply on their website and get quick disbursals.
7 Essential Tips For First-Time Personal Loan Applicants
Personal loans are unsecured loans, which do not require you to make any kind of security deposit while availing funds. At times, when you have an urgent requirement for finances, a personal loan is the best way to raise funds. With an extremely simple application process, which requires minimum documentation, a personal loan can give you the perfect financial boost to meet extra expenses or cover for unexpected emergency situations.
In addition to not backing your loan application with any collateral, you are also not required to state the reason behind applying for the loan. This means you could use the money for any purpose, depending upon your financial requirements. By providing you with immediate access to funds, personal loans allow you to focus on the more important aspects of life and help you achieve your dreams.
While the benefits of this scheme make it a popular financial solution, the decision to opt for a loan is a big one and must be made after carefully considering all aspects related to it. It is imperative, especially for a first-time applicant to acquire proper knowledge about the loan and also to understand one’s own financial requirements before taking any decision. The following tips could help a first-time applicant make a more informed decision when it comes to personal loans:
Assess Your Requirement
You must apply for a personal loan only after assessing your requirement for the same. It is advisable to opt out of taking a loan if you can somehow manage to meet your needs through more direct methods of payment. Since the loan is to be repaid through monthly instalments, it could be easy to get carried away by urges and desires to seek instant gratification and purchase things which you do not have sufficient funds for. However, you must carefully analyze your resources to determine whether you can regularly pay those instalments and try to avoid taking the loan to meet non-essential financial needs. It is a smart move to determine the amount of money you require in the present, if at all, and plan the repayment process judiciously
Know Your Credit Score
Your credit score is of utmost importance when it comes to applying for a personal loan. Your eligibility for a loan, the amount of loan that may be sanctioned to you, the interest rate, and the approval of your loan are largely dependent on your credit reports. A good score establishes creditworthiness which exponentially increases the chances of approval while existing repayment obligations adversely affect your application. You must keep a check on your credit score, and try to clear any pending dues in order to maintain a good score before applying for a loan. If you know your scores, you will have a rough idea about the amount of loan you are eligible for. Furthermore, you can verify this score and have any errors in the report rectified before applying, as it increases your chances of favourable terms.
Calculate Total Outflow
You must be aware of how much money you will spend over and above the loan amount you seek. In other words, you must calculate the total cost of taking a personal loan before applying for it. This cost includes the application fee and processing charges levied by various financial institutions, in addition to the interest rate you pay on the loan amount. Not only do these charges vary from one bank to another, some institutions might not levy additional charges at all. Comparing the offers from different institutions could help you determine where you are likely to save the maximum cost while taking a loan.
The repayment structure you choose could also have an impact on the total amount you spend on the loan. For example, lower EMIs over a longer tenure tend to be more expensive in the long run as you continue to pay interest on the amount for a greater period of time. To ensure that you optimize the benefits of this scheme, it is advisable to opt for larger EMIs and pay off the loan at the earliest.
Know the Additional Charges That Could Be Levied
It is advisable to understand the fine print of the terms of the loan and be informed of the situations which may attract additional charges. While there are several kinds of charges which could be imposed by different institutions, some of the common charges include –
• Late payment penalties – In case you fail to pay your EMIs on time and default more than once, you would be liable to pay penalties for late payment. A certain percentage is charged and added to your monthly EMIs as penalty.
• Pre-payment fee – You may choose to pay a part of the loan amount or clear the entire dues prior to the expiration of the contracted tenure. Pre-payment is not an option which every bank allows, and if they do, it might attract a fee which is a certain percentage of the outstanding loan amount
• Cheque Bounce Charges – Some banks might ask you to pay the penalty if the cheque towards your EMI is not honoured by the bank
Compare Interest Rates
When you approach any financial institution for a personal loan, they will make you a loan offer after thoroughly checking your credit score and repayment history. The interest rate on the loan amount is determined by your credit history, and to an extent, by the profile of your employer or the reputation of your place of work. A stable income and good creditworthiness will ensure a lower rate of interest. You must invite loan offers from as many institutions as possible in order to be in a position to negotiate the best deal and get yourself the lowest possible interest rate.
Plan Your Repayment Structure
You are required to repay the loan amount over a period of time, in fixed monthly instalments or Equated Monthly Instalments (EMIs). Your EMIs are based on the loan tenure and are calculated according to the interest rates on your loan amount. This tenure is flexible and determined by you according to your convenience. A shorter tenure attracts higher monthly EMIs, and the EMIs reduce as the tenure is increased. Since you get to choose the tenure and the corresponding EMI, it is imperative to be sure of your resources and have plans in place to make those regular payments.
If you make some extra money, be it through an increased salary, a bonus or gains from an investment, it is prudent to use it to make prepayments against your loan. Making prepayments reduces the tenure of the loan and the lesser the tenure of an outstanding loan, the lower is the rate of interest it attracts.
Follow-up on the Application Process
After having narrowed in on the financial institution of preference, you must contact them to intimate yourself of the documentation required to apply. Though basic paperwork regarding identity proof and address proof remains the same, other requirements vary in different institutions. Applying correctly is of utmost importance because loans can be rejected based on incomplete paperwork.
