Often, when you begin your investing, the most common advice is to park some amount in fixed deposits. Fixed deposit is an instrument wherein you invest money for a fixed period, with a pre-determined fixed rate of return. Nothing wrong about that as this is the most common investment option with low risk and low gain. A vast majority of the savings are being parked into bank fixed deposits as the investors believe that banks are more trustworthy and reliable. However, one can opt for a Corporate Fixed Deposit also after duly weighing its merits and limitations.
Corporate Fixed Deposits are investment instruments offered by non-banking financial companies, where you can deposit money for a higher rate of interest than savings accounts. You can deposit a lump sum of money in fixed deposits for a specific period, ranging from 7 days to 10 years.
Companies raise funds for their operations, expansion, etc. from banks and financial institutions. Similarly, with the due approval from the RBI, they can raise funds from the public in the form a fixed deposit and offer a slightly higher interest rate than that of the banks. When the duration of the fixed deposit is longer, they offer a higher rate of interest as the companies can use the funds for long period of time.
Once the money is invested with a reliable financier, it starts earning an interest based on the duration of the deposit. Usually, the defining criterion for FD is that the money cannot be withdrawn before maturity, but you may withdraw them after paying a penalty.
There are several advantages of fixed deposit investments, some of which have been given below:
The interest earned from fixed deposits is taxable. The tax deducted at source on FDs can range from 0% to 30%, depending on income tax bracket of the investor. Financiers deduct 10% TDS if your interest earned is more than Rs. 10,000 in a year, if your PAN details are available with them. However, in case your PAN details are not provided to your financial institution, 20% TDS will be deducted.
If your total income is below the minimum tax slab of 10%, you can claim a refund of the deducted TDS. You can also avoid the deduction by submitting Form 15G to your financial institution, and submitting Form 15H if you’re a senior citizen. If you fall in the higher tax bracket (20% or 30%), you would have to pay extra tax over and above the TDS deducted by your NBFC or bank.
You can opt for a Fixed Deposit which enables you to earn greater returns with a higher interest rate. You can also leverage benefits of flexible tenor, easy online application processes, and start investing with just Rs. 10,000.
With Corporate Fixed Deposits, you get high security because of ratings available from CRISIL and ICRA.
If you’re looking to invest in Fixed Deposits, here are the documents you need:
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