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Seven things to know before investing in an FD

FDs allow you to manage your financial risks and help fulfil your goals aspired for different stages of your life. These could involve securing your child’s future, his or her education and marriage, or as a hedge against unexpected expenses.

ET Spotlight|
Updated: Aug 16, 2019, 06.10 PM IST
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ET Spotlight
Seven things to know before investing in an FD
Fixed Deposits (FDs) are one of the safest and most preferred investment options available to those averse to investing in risk instruments such as equity and mutual funds. FDs allow you to manage your financial risks and help fulfil your goals aspired for different stages of your life. These could involve securing your child’s future, his or her education and marriage, or as a hedge against unexpected expenses. Such deposits are also a smart way to build savings over a period of time.

However, before you invest in a FD, you need to consider the following points:

Safety: FDs are secured investments that offer assured returns. Fixed deposits offered by corporates and HFCs are rated by credit rating agencies, so that investors can choose wisely. If you are planning to invest in a corporate FD, always go for corporates that enjoy high ratings like ‘AAA’ or similar.

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Minimum Deposit: Many companies have different minimum and maximum deposit amounts. It is advisable to check with the company before investing. At PNB Housing, the minimum amount that can be put in fixed deposit is INR 10,000.

Tenure: Most corporates offer deposits for a period anywhere between 1 year and 10 years. Choose your tenure carefully, as premature closure of an FD attracts a penalty that will reduce the total interest earned on your deposit. For example, if you think you might need the money after two years, then make sure you invest for a period of two years or less.

Interest Rate: Corporates offer fixed deposit schemes that pay interest on cumulative and non-cumulative basis, depending upon the choice the applicant makes. Customers looking for a regular income on monthly, quarterly, half yearly or annual basis can opt for non-cumulative schemes. For investors looking for savings and return earned over a long period of time can choose cumulative schemes where both the principal and accumulated interest is paid on maturity. The rates of interest are subject to change at the sole discretion of the company. The fixed deposits which are offered by corporates and HFCs usually carry a higher interest rate than the bank fixed deposits.

Nomination: Always exercise the nomination option in FD, more so if you are the sole depositor. In the event of the death of the depositor, the nominee can claim the entire sum with interest.

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Tax Deduction at source (TDS): The interest income from a particular corporate fixed deposit is more than INR 5,000, and then the company has to deduct tax at source beyond that amount. Thus, the limit for a TDS of an HFC is INR 5,000.

Advantage for senior citizens: Corporate fixed deposits are a good investment option for senior citizens as they give them safe returns with an alternative of regular income, in their retirement years. Interest rates offered to senior citizens are generally 0.25% higher than the standard rates offered.

For all of these reasons, fixed deposits are a safe and strategic investment that serves the twin goal of providing regular income and building a corpus — with little or no risk to investors.

PNB Housing offers FDs that are rated FAAA with negative outlook by CRISIL indicating high levels of safety. Fixed deposits offered by PNB Housing can be created for durations between 12 months and 120 months, and the rates of interest are significantly higher than bank FDs.
(This article is generated and published by ET Spotlight team. You can get in touch with them on etspotlight@timesinternet.in)
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