Almost all banks now offer fixed deposit accounts as a profitable investment option with Monthly Income Scheme. Due to its consistent returns and minimal risk, it is one of the most popular investment vehicles. Given the proliferation of banks that provide this service, it is critical to understand the superior alternative.
Due to their capital security and ease of investing, fixed deposit plans have traditionally been India’s most popular investment option. Fixed deposits, like any investment, have their own set of perks and downsides.
When selecting a bank to create a fixed deposit account, choose the one with the most incredible FD rates. However, the fixed deposit has several drawbacks. For instance, early withdrawals are prohibited or subject to a penalty with Monthly Income Scheme.
Thus, if you desire to invest in a fixed deposit, it is prudent to examine a few variables while evaluating the available fixed deposit choices.
Essential factors to be considered when investing in fixed deposits
The Inflation Rate’s Effect on Fixed Deposit Schemes
Over time, inflation erodes the buying power of your money. The simplest way to visualize inflation is to consider how many veggies you could get for INR 500 five years ago against how many vegetables you can purchase now for the same amount. Today, the quantity of veggies available for INR 500 is much less. It is due to inflation’s eroding influence on your purchasing power.
If inflation is 6% p.a. and your fixed deposit offers a rate of, say, 7% p.a. after-tax, your investment grows by an extra 1% p.a. to avoid being eroded by inflation. It is essential to consider when investing in set deposits since the interest rate on your fixed deposit is constant for the duration of your investment. However, the inflation rate is subject to change depending on the economic circumstances.
Interest Rates and Terms of Fixed Deposits with Monthly Income Scheme
The interest rate on your fixed deposit plan changes according to the period of your investment.
|Deposit amount||Tenor||Interest rate||Interest earned||Total earnings|
|Rs.3 lakh||12||5.65% p.a.||Rs. 16,950||Rs. 3,68,028|
|Rs 3 lakh||24||6.40% p.a.||Rs. 39,629||Rs. 3,39,629|
|Rs 3 lakh||60||6.80% p.a.||Rs. 1,14,569||Rs. 4,14,569|
But if you’re a senior citizen, many banks will offer you preferential FD rates. Senior citizens get interest rates on HDFC Fixed Deposits that are 0.50% higher than standard rates. Similarly, Bajaj Investment provides interest rates up to 7.05% p.a. for senior citizens.
|Deposit amount||Tenor||Interest rate||Interest earnings||Total earnings|
|Rs. 3 lakh||12 months||5.90% p.a.||Rs. 17,700||Rs. 3,17,700|
|Rs. 3 lakh||24 months||6.65% p.a.||Rs. 41,227||Rs. 3,41,227|
|Rs. 3 lakh||60 months||7.05% p.a.||Rs. 1,21,750||Rs. 4,21,750|
The Fixed Deposit Scheme’s Effect on Your Financial Portfolio
It is critical to diversify your portfolio and avoid investing all of your wealth in fixed deposits since inflation gradually erodes the purchasing value of your money. Additionally, it would be best to have capital appreciation in your portfolio.
Calculate the proportion of your invested money that should earn you a high rate of return so that your money does not lose value in the long run. If the needed proportion is 20%, then 20% of your assets should be in stocks, and the remaining 80% may be securely invested in fixed deposits. Additionally, this amount may change according to your risk tolerance as an investor.
Partial Withdrawal and Loan Overdraft Facilities are Available
Certain banks permit partial withdrawals from fixed deposits to provide liquidity if the investor needs cash immediately. Additionally, most banks offer loan overdraft privileges on your fixed deposit scheme if you need money immediately. For example, Bajaj Finance Fixed Deposit Schemes enable you to get a loan overdraft of up to 75% of your deposited amount. Using these features will avoid being forced to make an early withdrawal and terminate your Fixed Deposit investment.
Charges for Early Withdrawal from Fixed Deposit Schemes
If you need to cash out your Fixed Deposit Scheme early due to an emergency, the bank may charge you an early withdrawal penalty in the form of early withdrawal costs. Early withdrawal fees vary by bank. For example, if the duration of an HDFC Fixed Deposit Scheme is between 7-14 days, there are no early withdrawal penalties. HDFC Fixed Deposits, on the other hand, are subject to a 1% penalty on the applicable interest rate for longer tenures.