Advantages of a Fixed Deposit Account

Many times you may have heard people advising you to invest your money in a FD account. So what is FD? Fixed Deposit or FD is a type of term deposit that gives you a fixed rate of interest until maturity. By investing in FDs you can save and earn money at the same time. It also offers a higher rate of interest compared to a regular savings account. Apart from this, there are other advantages of having a FD account.

Mentioned below are a few advantages of having a FD account:

• Assured Return – If you invest your money in a fixed deposit account, you are assured a return. You will earn interest on your deposited amount, but the rate of interest depends on the tenure you have chosen. Banks in India are offering around 7% to 8% interest on Fixed Deposits at present.
• Flexible Payment – FDs allow you to choose how you wish to receive interest. You can choose to be paid annually, monthly or during maturity.
• Flexible Tenures – Fixed Deposits have flexible tenures. You can open a FD account for as less as 7 days. The tenure options are not the same for every bank. Also, it is not mandatory for you to have an account with a particular bank to open a FD account with it.
• Helps during Emergency – During emergencies when you are in need of money, a FD can help you a lot. Many banks offer loans against Fixed Deposits. Up to 90% of the deposit can be availed as loan. Some banks allow partial withdrawals of FDs as well.
• Risk Management – Financial instruments such as mutual funds, gold, etc., may provide high returns, but are also very risky. To adjust this market risk, it becomes important to invest in debt instruments. FDs will help you manage this risk as the returns are fixed.
• Easy to Withdraw – You can withdraw the amount you have deposited in your FD account at any time. For premature withdrawals, banks may charge you a small penalty.
• Saving Habit – Fixed Deposits help people in developing a habit of saving money. When you invest a certain amount in FD, that amount cannot be used until you withdraw it or maturity.

These are some of the benefits of investing in fixed deposits. You can open a FD at any time and the application process is also very simple. Just make sure that you select the right tenure.

What you need to do if you get an IT Notice after Demonetization

What you need to do if you get an IT Notice after Demonetization

The deadline to convert and deposit demonetized currency has elapsed. If the deposited amount is below Rs.2.5 lakhs, then you do not have to worry about paying tax on it. However, the Income Tax Department may send you a notice if your deposited amount exceeds Rs.2.5 lakhs.

Who are likely to get a notice from the Income Tax Department?

Banks have been directed by the government to furnish the following details:

• Individuals who have deposited over Rs.2.5 lakhs in open fixed deposit accounts or savings accounts.
• Individuals who have deposited over Rs.12.5 lakhs in their current accounts.

Upon these details being sent to the IT department, necessary notices may be sent to individuals. You may also get a notice if you have purchased high value items during this period such as a car or gold. This is because the IT department has asked all car dealerships and jewelers to provide their business transactions to the department if there has been a spike in their sales after the announcement of demonetization.

What you need to do under such circumstances

Do not panic if you receive a notice from the IT department. As this is not a normal time for this country, anyone who has deposits over Rs.2.5 lakhs in their accounts may get a notice. This does not mean that an investigation will be launched against you to implicate you in any manner. Additionally, the IT department may only send such notices to those individuals whose deposit amounts do not match their income as per their assessments.

Those who have relevant or necessary documents to explain their deposit amounts do not need to worry in any way. Furthermore, if you have done nothing illegal in obtaining the money in your deposit, you do not have to worry irrespective of your deposit amount or income. You will be investigated only if you do not provide a satisfactory answer to explain the source of the money.

After the announcement of demonetization, the government has also made it compulsory to furnish your PANCard number in case of deposit amounts exceeding Rs.50,000. Therefore, if you have not filed IT returns for a while and your deposit amount has exceeded Rs.2.5 lakhs, the IT department may send you a notice asking you to explain the source of the income and request you to file your taxes. An investigation will also be launched in such cases.

What will happen if you do not respond to the notice sent by the Income Tax Department?

You must always respond to any notices the IT department issues you. However, for whatever reason, if you have not responded to the notice, the department will send you a follow-up communication. Furthermore, the department will use your deposit data and other details available on you to assess your income and tax liability, upon which you will be asked to pay the difference, if any.

However, note that if you abstain from responding to the IT department notice, they may assume that you cannot explain the source of your income and hence, you did not respond to the notice. If you are unsure on how to proceed or respond to the notice, you always have the option of consulting with a tax consultant or any practicing CA for the right course of action.

It will always be beneficial if you keep a record of all your finances through relevant documents for future use. You can furnish these documents if you ever receive a notice from the IT department and resolve the issue quickly. It is not a good practice to keep such issues pending. In case you are served with a notice, always cooperate with the authorities instead of resisting responses or providing misleading information. Always pay your dues to stay under the radar.

Small Finance Banks Compete for Term Deposits as Interest Rates Fall

Banks across the country are flushed with currency since demonetization of two of the most popular currency notes – Rs.500 and Rs.1000 was announced by Prime Minister Narendra Modi on November 8, 2016. In lieu of this move, interest rates across deposits and banks have been falling ever since and SFBs or Small Finance Banks are competing with each other to offer the best possible rates on the table.

How are SFBs capitalizing on interest rates post demonetization?

The main reason for slashing the interest rates off deposits have been to keep in check with the offtake of slow credit as the aftermath of demonetization. Customers of SFBs are now being offered interest rates that are up to 200 bps or basis points higher than the current market rates. Take for instance, Suryoday Micro Finance – the bank is offering its term deposits at an interest rate of up to 9% p.a. depending on the tenure and senior citizens will receive an additional interest rate of 0.75% p.a. Even their savings accounts are being offered at an interest rate of 6.25% p.a. for up to Rs.1 lakh and for deposits between Rs.1 lakh and Rs.10 lakhs, an interest rate of 7.25% p.a. is being offered.

Utkarsh is another SFB that is offering their term deposits with interest rates of up to 8.5% p.a. and an additional interest rate of 0.50% p.a. for senior citizens. Utkarsh is also set to open 50 new bank branches over the span of 2 months and upgrade its present MFI or Micro-Finance Institutions into full-fledged banks this April, as communicated by the bank’s managing director, Govind Singh.

Ujjivan is another SFB that is prepared to offer interest rates on deposits that are higher than the prevailing market rates. Ujjivan’s focus so far has been only on wholesale deposits, but it is also preparing itself to raise interest rates for its retail deposits in the near future.

Equitas is offering interest rates up to 9% p.a. on their term deposits and between 6% p.a. and 7.5% p.a. on their savings account.

Capital Small Finance Bank is offering 4% p.a. interest rate on their savings account and 7% p.a. on their term deposits for a tenure between 5 years and 10 years. For senior citizens, the bank is offering an interest rate of 7.2% for a tenure of 400 days.

What does the future look like for SFBs?

The cost of funds for a majority of these Small Finance Banks have been 11% or more. However, as many SFBs are gearing themselves to convert their existing businesses into banks, their cost of funds will most definitely come down even if they are offering interest rates higher than the prevailing market rates.

However, most of the SFBs are said to initially focus on micro lending before transitioning into full-fledged retail banking. Due to this focus, most of the SFBs are proposing to keep their MCLR or Marginal Cost of Funds based Lending rate high.

According to the norms put forth by the RBI (Reserve Bank of India), SFBs have to start their operations latest by this April. RBI granted licenses to 10 SFBs in September 2015 and recently, 11 companies have been permitted to start payment banks.

Can debt mutual funds be the perfect alternative to fixed deposits and Term Deposits?

Can debt mutual funds be the perfect alternative to fixed deposits and Term Deposits?

Equity mutual funds can definitely prove to be a suitable option for several people with long term investment plans. However, there can be situations when the equity is not very suitable. The reasons are as follow:

The goals that you set are only five years away.

• You are not comfy with volatility and you are also ready to adjust the expectations of growth accordingly.
• The objectives of growth will be met with a return rate of 8 % to 9 %.

In case you are in such a position, you have two options to choose from. Debt Funds and Bank Fixed Deposits and Term Deposits. Let us compare them on different grounds.

• The security of your capital is pretty much the same – In order to know if your money is safe or not, you must take a look at the credit rating of this instrument. This is provided by the independent agencies for credit rating using the scale below.

Rate	Issuers	Meaning
Sovereign	Indian Government	Absolutely safe
AAA	Public sector undertakings, most banks, stable big companies	Very safe (high degree of safety)
AA	Private organizations	Considerably high safety
BBB	Private organizations	Below average
BB, B, C or Lower	Private organizations	Poor

Mostly fixed deposits and term deposits are extremely safe and they are rated as AAA. In other words, there is no chance that you will lose the money that you invested. It is often assumed that the government guarantees fixed deposits. It is true that the government guarantees fixed deposits but only till an amount of Rs 1 lakh. Above that, the bank’s credit rating plays a major role. The selection of the bank is also vital. The debt funds do not come with ratings. However, the safety with debt funds can be deduced. It typically lies between Sovereign and AA. If you choose carefully, you might be able to select a debt fund that comes with a combined credit risk similar to fixed deposits.

• The rate of interest gets locked when you invest in fixed deposit. At present that rate is 8 % to 9 %. This is applicable for a tenure that is above one year. You will be able to calculate the exact amount that you will get when the deposit matures. The debt funds offer 8 % to 9 % returns too. However, there is no guarantee about the returns. Debts funds are definitely safe but there can be situations when there is volatility due to interest rate fluctuations.The income that you get from debt funds and fixed deposits are categorized differently. Debt funds offer dividend or capital appreciation. The interest amount that you get from the bank fixed deposits are taxable. On the other hand there is hardly any tax deduction on the debt funds after a period of three years. The tax that you pay on your debt funds within the 1 to 3 year time frame is pretty low. Up to the end of the first year, the tax impact for debt funds and fixed deposits are same. Every year, taxes must be paid for the interest earned of FDs. Thus, the amount of money that accumulates becomes lesser.

• In case you need money before your fixed deposit matures, you will be getting lesser interest than you should. Along with it, you will also have to pay penalty charges for withdrawing the amount before maturity. Some of the banks might allow you to withdraw from your FD in part. However, most banks would ask you to take the entire amount when you wish to break the FD. For example, if you have Rs 2 lakhs in your fixed deposit account and you wish to take only Rs 40,000 from it, you might not be allowed to do it. You will be asked to withdraw the entire deposit of Rs 2 lakhs. On the other hand, debt funds offer you full liquidity for the investments you make. Any amount can be withdrawn from the debt fund value as per your needs. The money will be transferred to your bank account within a period of 3 to 4 days. The return that you receive is the money earned by your debt fund over the investment period. No complex formula is associated with it.

• Since the FDs are taxable, records must be maintained about your investments. You must compute the income that you will earn from the interest and then file the taxes for it. Things get complicated further when you withdraw money before your FD matures. In case of debt funds, the only tax that you have to pay is on capital gains when you withdraw. This means, you might pay for the taxes only once in five years.

3 Important Tips To Earn The Most Out Of Your Fixed Deposit Investment

3 Important Tips To Earn The Most Out Of Your Fixed Deposit Investment.

The world economy is currently undergoing a bit of a slump. While it has marginally come out from the 2008 stock market disaster, there hasn’t been a full recovery. As such cases are never too far from happening, a vast majority of of investors are taking conservative decisions particularly when it comes to safeguarding their hard-earned money.

In this article, you will find some of the most important tips if you want to earn the most out of your fixed deposits.

1. Research All The Way

Fixed deposits are traditionally the safest investment option when compared to mutual funds or stock as the returns you get aren’t linked to the economic conditions. Ideally, an FD would get you returns of about 6% - 9% on your investment.

In order, for you to get the most money out of your fixed deposit you will need to do your due diligence to find the best offers. One way to do this would be to get in touch with a handful of top banks or NBFCs and get a quotation of the rates they offer. Once you have all the offers in hand, you can select a deal that gives you the best interest rate.

2. Split Your Fixed Deposits/Term Deposits
   If the interest on your fixed deposits/Term Deposits earn more than Rs. 10,000 a year, they will be eligible for a Tax Deduction at Source (TDS), which can be up to 10%. In order for you to make sure the deduction doesn’t happen, you can split your deposits such that the total interest earned would not be more than Rs. 10,000 a year.
   Doing so can also be advantageous for you because you wouldn’t have to withdraw your entire FD if and when a cash crunch arises. Instead, you can break one or two while others will keep getting you the predetermined interest like it used to.
   However, an important aspect worth noting is that you will need to mention the FD earnings when you file your tax returns, unless you want the IT department to come knocking on your door for tax evasion.
3. Refrain From Making Regular Interest Withdrawals Every FD you apply for provides you with a number of options: one, withdraw the interest every month or quarterly or let it rest and gain more interest. When such instances occur, choose the latter. This is because when you withdrawing the interests regularly, you will not get the benefit of your FD’s interest compounding.To tackle this situation, you can reinvest the earnings to let it earn much better returns.
4. To summarise, termdeposits are one of the safest investment options which guarantee decent returns on regular intervals. If you are looking to make the most out of them, you can use the options listed above and be a more pragmatic investor.

Fixed deposits and Term deposits are a safe investment avenue for savers

Fixed deposits and Term deposits are a safe investment avenue for savers

It is advisable to put your hard earned money in different investment schemes to not only save for future use but also to earn better returns. Term deposits have proven to be a safe and good investment avenue for retirees, investors, and savers. Term deposit schemes are devoid of risks associated with market volatility. Its rates change on a regular basis. Deposit rates are calculated depending on the tenure of a fixed deposit. A fixed deposit tenure can be anywhere from a month to 10 years.

Types of term deposit schemes

A term deposit scheme is classified as short-term or long-term based on the tenure. The 2 types of term deposit schemes are:

• Short-term deposits: A short-term deposit scheme can have a tenure anywhere from 1 month to 1 year. Short-term deposit schemes are for those who have short-term savings goals. If you choose a short-term deposit scheme, ensure there is an option to renew your deposit after the end of the tenure. Short-term deposit schemes have lower interest rates compared to long-term deposit schemes.
• Long-term deposits: The tenure for a long-term deposit ranges from 1 year to 10 years. Choose a long-term deposit scheme with a competitive interest rate. Long-term deposit schemes with monthly interest earnings will offer lower interest rates compared to quarterly or yearly earnings. You should also look out for advance notice period for premature withdrawal of your deposit. If an advance notice period is required for the premature withdrawal of your deposit, then it may not serve your urgent financial need.

Features of a fixed deposit scheme

A fixed deposit account is a savings account in which you can deposit a principal amount once and earn interest on the deposited amount for a fixed tenure.

• You can deposit money only once in a fixed deposit account, unlike a savings account. To make another deposit you will have to open a separate FD account.
• The interest earned on a fixed deposit amount can be transferred to your savings account on a quarterly or monthly basis. This is not applicable for reinvestment schemes.
• You can renew the deposit for another fixed period after the end of the first tenure.
• Encasement of your FD can be done only at maturity. You will have to pay a penalty fee for partial or premature withdrawal of deposit.
• The interest earned on your fixed deposit amount is subjected to tax deduction at the source.

Fixed deposits are preferable to savings accounts as the interest rate is higher for FDs.

Advantages of having a fixed deposit account

In addition to saving money, listed below are other benefits of owning a fixed deposit account:

• A fixed deposit can be used for tax benefits under Section 80C of the Income Tax Act.
• You can also use your FD account as collateral to obtain loans or overdraft.
• Some banks offer higher interest rates on FD to customers above 60 years of age. You can open a joint account with a senior citizen to get a slightly higher interest rate on your FD.
• A FD can be used to improve your credit score.
• You can obtain secured credit cards using your FD.

Deposit rate cuts post demonetization

Before investing in a term deposit scheme, compare the deposit rates across banks and choose the one with the highest rate to earn better interest on your savings. Indian banks were offering up to 9% interest rate on FDs. However, following the demonetization of Rs.500 and Rs.1,000 currency notes last November, banks are now flush with cash. The drastic increase in cash inflow has brought down the cost of funds. Therefore, many national banks have reduced their deposit rates. Currently, Ratnakar Bank is offering the highest interest rate on FDs with tenure ranging from less than 1 year to more than 10 years at 7.50-7.70% p.a.