A Fixed Deposit (FD) is one of the primary investment choices for investors. Although it has been in the investment market for a while now, there are still individuals who are not really aware of what a fixed deposit is and the top benefits of an FD as an investment. Some people make a considerable investment without knowing its extensive rules and regulations.
This article will enlighten you with the top ten things you should know if you have invested in a fixed deposit.
What is a Fixed Deposit Investment?
A fixed deposit is an investment option that allows people to deposit a lump sum amount of money into a deposit account for a fixed period of their choice at a fixed interest rate determined by respective financial institutions. Banks and Non-Banking Financial Companies (NBFCs) are the two most common financial institutions that accept a fixed deposit investment and provide you with the facility to open a fixed deposit account online or offline. The increase in usage of the internet has made young investors leverage the online platform to open a fixed deposit account quickly and seamlessly.
Top 10 Things You Must Know If You Have Invested in a Fixed Deposit
Making a fixed deposit investment is often considered a prudent financial decision for conservative investors because it offers predictable returns and portfolio stability. Besides knowing the sum of returns at maturity, one can plan future financial goals accordingly. Here are the top ten critical features you must know if you have already made an FD investment in India.
1. Fixed Deposit Receipt – FDR is a Fixed Deposit Receipt. It is a certificate provided by banks and NBFCs while opening a fixed deposit account. A fixed deposit receipt will include personal details of the investor, type of fixed deposit, maturity amount, interest rate, nomination details or other charges (if any). You can apply for an FD to receive the FDR.
2. Auto-Renewal or Auto-credit after Maturity – Do you know what happens to your fixed deposit after maturity? Banks and NBFCs commonly auto-renew your FD or credit the maturity amount to your bank account. This will be done after taking permission from the depositor. If the depositor chooses withdrawal, the entire amount will be given back, otherwise it will be reinvested again.
3. Withdrawal After Death – If any unfortunate event like a death occurs to the investor, nominees can withdraw or continue the fixed deposit until maturity. However, the nominee should provide the fixed deposit receipt to take control over the fixed deposit account or withdraw funds from the FD account after the investor’s death.
4. Nominee Details – When you open a fixed deposit account, you can add your family members or close relatives as nominees. It would help if you did not forget to inform the nominee. During unfortunate events like death, the nominee will be the caretaker of the account until the legal heir claims the maturity account.
5. Interest Rate – When you open a fixed deposit account, your interest rate on an FD will be fixed and remains the same throughout the tenure.
6. Premature Withdrawals – You can make premature withdrawals from your fixed deposit during emergencies. However, you need to pay a small percentage as a penalty.
7. Lock-in Period – All the fixed deposit accounts will have a lock-in period until which you cannot withdraw or break an FD. Respective banks and NBFCs generally have a set rule about lock-in periods.
8. Loan Against Fixed Deposit- One important feature of a fixed deposit is the option to avail a loan against it, subject to eligibility and terms. Instead of prematurely withdrawing your FD and losing interest benefits, you may pledge the deposit to raise funds during emergencies.
9. Cumulative vs Non-Cumulative Option
Fixed deposits are generally available in two payout structures:
- Cumulative FD – Interest is compounded and paid at maturity. This option is suitable for investors looking to build a lump sum corpus.
- Non-Cumulative FD – Interest is paid periodically (monthly, quarterly, half-yearly, or yearly), subject to scheme terms. This may be suitable for individuals seeking regular income.
Choosing the right payout option depends on whether your goal is wealth accumulation or steady income generation.
10. Rules and Regulations of an FD – You must know the basic rules and regulations of a fixed deposit and adhere to them until maturity. Following the rules will help you can receive the full benefit of an FD with steady returns.
Book an FD with Shriram Finance
Now that you have answers to most of your questions regarding a fixed deposit account, it is time to consider opening an FD with Shriram Finance. An FD investment with Shriram Finance offers competitive interest rates, flexible tenure options, and predetermined returns. You can explore and evaluate the scheme based on your financial goals.
Key Highlights
- A Fixed Deposit (FD) is one of the primary types of investment, but there are still many people who are not really aware of what a fixed deposit is and the top benefits of an FD as an investment.
- When you book an FD with Shriram Finance, you will be given complete knowledge and awareness about a fixed deposit, its rules and regulations, features and benefits.
- Knowing the rules and regulations of a fixed deposit will help you plan your future goals accordingly.
FAQs
How does a fixed deposit work?
A fixed deposit is an investment instrument offered by banks and NBFCs that allows investors to deposit funds for a fixed tenure and earn interest at a predetermined rate.
What should I look for in a fixed deposit?
When investing in a fixed deposit, key factors to evaluate include the interest rate, tenure, credit rating of the issuer, and premature withdrawal terms.
When should we invest in a fixed deposit?
There is no specific time to invest in a fixed deposit. However, when choosing an NBFC over a bank, you may receive competitive interest rates depending on the tenure and applicable terms.