In India, FDs and liquid funds are the top investment choices. FDs offer guaranteed returns, a safe bet for cautious investors. Liquid funds attract those seeking short-term investments with higher returns. 

This guide explains FDs and liquid funds, benefits, and key differences. If you find it difficult to decide between safety and returns, this guide is for you. 

How Do Liquid Funds Work?

Liquid funds, also called money market funds, invest in debt securities. These include commercial paper, bonds, and government securities. A fund manager manages them, and they have a 91-day maturity. Hence, they are ideal for idle cash. Also, there is no lock-in period, and they offer stable returns from highly rated securities. 

What Are Fixed Deposits?

A fixed deposit is a risk-free investment opportunity that offers a fixed rate of interest. FDs provide guaranteed returns, but the amount is locked in for the duration of the deposit. While it allows premature withdrawals, it attracts penal charges.  

Additionally, interest rates also change periodically but do not vary during the tenure of an FD. Moreover, the interest is also subject to tax. 

Before you make any financial commitments, it’s wise to utilise a Fixed Deposit Calculator. It helps to estimate potential returns and make informed investment decisions. 

Also read: Risk and Returns: A Comparative Analysis of FDs and RDs 

Comparing Fixed Deposits and Liquid Funds

When you evaluate investment options, it’s essential to analyse liquid funds vs fixed deposits. It will help determine which will suit your financial needs and risk appetite better. 

Risk and Returns:

Fixed Deposits (FDs): Offers guaranteed fixed returns at minimal risk and is ideal for conservative investors but offers lower returns. 

Liquid Funds: Offers higher returns with more risk due to market volatility. Suitable for those comfortable with some risk. 

Liquidity:

FDs: Offers less liquidity with penalties for premature withdrawals. 

Liquid Funds: Offers high liquidity with easy withdrawals after seven days and no penalties. 

Investment Horizon:

FDs: Best for long-term investments, ranging up to ten years. 

Liquid Funds: Are designed for short-term needs, typically up to 91 days. 

Taxation:

FDs: Interest is subject to TDS if it exceeds ₹40,000 (₹50,000 for senior citizens) and is taxed as per income tax slabs. 

Liquid Funds: Taxed based on the holding period. Short-term gains are taxed according to the income tax rate; long-term gains are taxed at 20% with indexation benefits. 

​​​Considerations Before Investing

When you weigh the pros and cons of different investment avenues, it’s wise to compare liquid funds vs. FD to make an informed decision tailored to your financial objectives. 

For Fixed Deposits (FDs):

• Economic Conditions: FD rates fluctuate with national economic trends. Economic growth can lead to higher rates, while downturns may reduce them. 

• Monetary Policy: Changes in the central bank’s repo rate directly affect FD rates. Higher repo rates mean higher FD returns. 

• Inflation: High inflation rates can erode FD returns over time. Consider inflation-adjusted returns when evaluating FDs. 

For Liquid Funds:

• Investment Horizon: Match your investment period with your financial goals, as liquid funds are suitable for short-term needs (up to 91 days). 

• Fees and Expenses: Watch for management fees and other costs that can impact your savings. 

• Liquidity Risk: Although liquid funds offer high liquidity, returns can fluctuate with market conditions. 

• Returns: Liquid funds may offer higher returns than FDs but do not guarantee fixed rates. 

Choosing between FD or liquid funds depends on your investment horizon and risk tolerance, as FDs offer stability while liquid funds provide flexibility and potentially higher returns. 

Ready to secure stable returns? Consider investing in an IndusInd Bank Fixed Deposit today and take a step towards financial stability and growth.

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.  

If you are looking for secure investment options, Fixed Deposits (FDs) are often a top choice for many. Steady and guaranteed returns and high interest rates make it a preferred choice. 

While the promise of guaranteed returns makes FDs an attractive option, navigating the fixed deposit rules and regulations can be daunting. Investors need help in understanding the many terms, conditions, and penalties regarding early withdrawals. 

This article aims to simplify these key points, helping you make informed decisions and get the most from your investment. 

Types of Fixed Deposits (FDs)

Customers can choose between two types of FDs based on how they want to receive the interest. 

Regular/Traditional FDs

Interest payments are made on a monthly or quarterly basis. ​​The maturity duration is from seven days to ten years. 

Reinvestment FDs

The principal amount of this FD is reinvested along with the quarterly compound interest. 

General Rules Governing India’s Fixed Deposits

It is a set of rules and regulations that define, oversee, and control fixed deposits. The Reserve Bank of India sets minimum and maximum amounts for fixed deposits. Banks also set their limits. Minimum deposit ranges from ₹ 1,000 to ₹ 10,000 and varies among banks. 

Tenure and Premature Withdrawal

Fixed deposits have set periods of up to ten years. You can withdraw early, but banks penalise and may lower the interest rate. 

Interest Rates

The monetary policy of the RBI and banks determines the interest rates on fixed deposits. These rates change over time and vary based on tenure and the type of investor. For instance, senior citizens get higher rates.  

Tax Impact

Interest earned on fixed deposits is taxed based on your tax bracket, affecting higher-income investors. However, for those looking to save tax with FD investments, banks offer tax-saver FDs. These tax-saver FDs provide tax benefits under Section 80C of the Income Tax Act. 

Nomination Facility

All FD Accounts must have a nomination facility based on RBI regulations. The simple nomination procedure is crucial. It allows for a smooth money transfer to the nominee. The Bank FD nomination facility requires a single nominee for each deposit account. A parent or legal guardian can manage a minor’s account and submit the nomination on their behalf. It is also possible to change nomination details by filling out the required form as per Banking Companies (Nomination) Rules. 

Tax Deducted at Source (TDS) on Interest Income

Tax is deducted at the source (TDS) from interest income. The TDS threshold is ₹ 40,000 for regular investors and ₹ 50,000 for senior citizens. 

Auto-renewal and Maturity Proceeds

Investors need to know about auto-renewal and maturity proceeds. The bank renews FDs at its maturity for the same term unless told otherwise. One must give advance notice to change the term or withdraw proceeds. 

Always stay updated on the new fixed deposit rules to ensure you make the best investment decisions. An FD Calculator can help to estimate your returns and make informed investment choices. 

Also read: Fixed Deposit Myths Debunked: What You Need to Know 

Eligibility Criteria for Fixed Deposits

Anyone can open an account for an FD, regardless of age; minors and senior citizens alike can apply. A depositor only needs to provide the following documents to open an FD account: 

• PAN Card 

• Aadhaar Card 

• Senior Citizen Identification Card (if applicable) 

Fixed deposits (FDs) are widely recognised for their reliability, safety, and promise of guaranteed returns, establishing them as a preferred investment option. However, investors must have a thorough grasp of the laws and guidelines governing FDs. This understanding empowers investors to navigate the FD landscape confidently and make informed decisions aligned with their financial objectives.  

Being well-informed about regulations ensures investors understand factors like minimum deposit requirements, penalties for early withdrawals, and tax implications. By staying abreast of these aspects, investors can effectively leverage FDs within their investment strategies, enhancing their financial security and achieving their long-term goals with greater certainty. 

Ready to grow your savings? Open an IndusInd Bank Fixed Deposit today and take advantage of secure, high yield returns. Start investing in your future now! 

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.