Fixed Deposit – Five Problems, One Solution

Fixed deposits or term deposits are a safe financial instrument offered by banks and NBFC providing investors with consistent, higher interests than savings accounts. The interest rate is fixed and paid at a predetermined rate throughout the tenure. Fixed Deposit is a popular investment instrument in India. It is ideal for anyone who does not want to bear any risk.

The minimum investment amount is Rs 5000. Notably, Shriram Finance offers a lucrative interest rate at 9.05%* p.a. inclusive of the special interest benefit of 0.50%* p.a. for senior citizens and 0.10%* p.a. for women depositors. The tenure for these deposits can range from 12 months to 60 months. You can also apply for an online fixed deposit within minutes by visiting the Shriram Finance website.

Over the years, Term Deposits have grown exponentially to provide flexibility to investors. There are various types of Fixed Deposits granted by financial institutions:

Fixed Deposits are the best solution to all your problems. Here is a list of problems to which Fixed Deposits provides a solution:

• Cumulative Fixed Deposit

  Cumulative Fixed Deposits do not provide regular interest payments. These payments are accumulated and compounded over the investment period and paid out on maturity, along with the principal amount.

• Non-Cumulative Fixed Deposit

  In this type, the interest pay-outs are made at regular intervals, monthly, quarterly, semi-annually, or annually. It is most suitable for those looking for a steady source of income, like pensioners.

• Fixed Deposit for Senior Citizens

  This is applicable for individuals above 60, with special rates of interest that are higher than the usual fixed deposit rates with flexible tenures.

• Tax-Saving Fixed Deposits

Tax-Saving Fixed Deposits provide a tax exemption of up to Rs 1.5 lakh in a calendar year. However, the lock-in period for tax-saving fixed deposits is five years, with a one-time lump-sum payment.

1. 1. Returns - Fixed Deposits provide an assured rate of return for your investment that is higher than a savings account. Thus, you will keep getting returns at a rate predetermined by you and the bank or NBFC, irrespective of the market condition. Usually, savings accounts provide an interest rate of around 3%, but for Fixed Deposits, it can go up to 7.50%, with a minimum investment of Rs 5000.
2. 2. Risk - Fixed Deposits are not affected by any market volatility. They continue providing the same returns. They act as a hedge against market volatility. Although investments like mutual funds and stocks offer higher returns than FD, they carry an equally higher amount of risk as market conditions drive them. These investments are not suitable for risk-averse investors.
3. 3. Liquidity - Fixed Deposits provide liquidity in the form that can be easily converted into cash. FDs can be withdrawn prematurely but with a certain minimum cost. Moreover, the investors can apply for a loan against the FD. This becomes helpful in a crisis when you will have sufficient funds.
4. 4. Flexibility - Suppose you intend to buy a two-wheeler for your daughter on her 18th birthday, that is, next year. However, you have the funds available currently. But you fear that if that money stays in your savings account, you might spend it, neither would you earn good interest on the same. So, you can choose to put this money in Shriram Finance Cumulative Fixed Deposit for 12 months. This way your money will not get spent. Moreover, you will earn good interest, which will get accumulated and compounded. You can get that interest along with the principal at maturity. Now, you will have more money at the end of 12 months to help you buy an even better model. This way, Fixed Deposits allow you to choose a tenure anywhere between 12 months to 60 months.
5. 5. Tax savings - The tax-savings fixed deposits can provide you with a tax exemption of up to Rs 1.5 lakh on the principal under section 80C of the Income Tax Act. The lock-in period for these FDs is 5years.

To conclude, Fixed Deposits can be a great start to your investment journey. It is an excellent option in terms of capital safety. Additionally, it helps inculcate the habit of spending less as the capital is locked in for the specified period. It provides greater liquidity as you can opt for a loan against your Fixed Deposit. It is a great investment tool for senior citizens because of higher interest rates and an opportunity to go for monthly pay-outs under the non-cumulative fixed deposits.

Shriram Finance has an unchallenged trust of over 45 years and above 5 million customers in the Indian market. Shriram Finance Fixed Deposit comes with a "MAA+ with Stable Outlook" rating (indicates high credit quality) by ICRA. The investment tenure can range from 12 months to 60 months with a minimum investment of Rs 5000. The interest rates are as high as 9.05%* p.a. and an additional 0.50%* p.a. for senior citizens. Also, you can go in for a regular pay-out option for monthly, quarterly, semi-annually, or annually.

For more details on the term deposits, you can also visit the Shriram Finance website online and use the Fixed Deposit Calculator to know the maturity and interest you can earn on your investment.