Best way for Long Term Investment into Fixed Deposits

In the world of investors, you have aggressive investors and conservative investors. If you are amongst the latter and wish to invest your funds in a safe long-term investment option, the fixed deposit might be the best option for you. Fixed deposits are the safest bet with decent interest rates and assure the safety of invested principal amount at the end of the term.

The Deposit Insurance and Credit Guarantee Corporation (DICGC) rules, insures your fixed deposit investments up to a maximum of Rs 1 lakh. This includes both the principal and your interest amount. This rule adds another layer of security to your investment, making it further safe.

If you are keen on an FD investment, here are some tips for the best approach towards long term investment:

Tenure:

The term for an FD can be anywhere from 7 days to 10 years. You should consider the term as per your principal lock-in comfort and interest rates. An FD rate calculator can give you a quick idea of returns for comparative analysis.

Interest Rates:

The FD interest rates keep on fluctuating. Always check the current FD rates of different banks to get the best option and ensure maximum returns.

Payouts:

You have monthly, yearly, or quarterly interest payout option or interest reinvestment option. For those who do not need the interest as regular income, cumulative deposits are the better option as an FD rate calculator will show.

General FD Schemes available:

  • Senior Citizen Fixed Deposit
  • Fixed Deposit Schemes for Children
  • Monthly Income Scheme
  • Joint Deposits
  • NRI Deposits
  • Corporate Deposits

Best approach for Regular Income:

For investors looking at a bank FD for regular income or any other needs, there is something known as the ‘laddering’ approach. Instead of locking in your principal for a fixed tenure, you can spread your funds across different maturities. Apart from providing occasional liquidity, you can also get benefits of fluctuating interest rates, in case the current FD rates are higher.

Tax benefits:

If you are a retired investor, you have the 5-year tax saving option. The term investment is eligible for Section 80C benefit. The income through interest is taxable, but it is set-off by the amount of tax saved in the year of investment.

Taxation for those falling under the different tax brackets are as follows:

Example: For a bank FD at 7.5 percent, post-tax return

5% – 5.94% return

20% – 5.16% return

30% – 5.16% return

Apart from this income above Rs 10,000 a year will attract 10% TDS. This is true unless form 15 G/H is submitted.

Mode of Investment:

Investing in FD can be done through different modes:

  • Internet banking
  • Visiting a nearby bank branch
  • FDs through ATMs in some instances
  • Phone banking channels
  • Banking Apps

Who should invest in Fixed Deposits?

FDs are the safest of the investment options and are well suited for ultra-conservative investors. If you are an individual who prefers fixed and assured return on your investment with the highest level of security, this is the best option for you. FDs are also the best option for your emergency funds, as you can take a loan against them with minimum documentation.

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