Skip to main content

Tax Planning through Bank Fixed Deposits

This erstwhile plain vanilla product has been made attractive by banks through bundled deals and flexible options

Fixed deposits (FDs) have always been an integral part of every investor's portfolio, simply because they give an assured rate of return. And traditionally, FDs have been plain vanilla products. However, in this era of fierce competition, banks have started introducing packaged deals to attract investors. Here are some interesting deals available in the market:

Insurance: Some FDs come with insurance. In this case, the core product remains the same with an additional benefit. But these schemes depend on the deposit amount and tenure.

For instance, a bank may give free accident insurance cover worth Rs 5 lakh on a 3-year deposit of Rs 25,000 carrying an annual interest of 8 per cent. This directly increases the value of the product.

Most banks provide accident insurance only. The sum assured ranges between Rs 3 lakh and 7 lakh. However, it is likely that the accident cover will come with a lot of clauses. Importantly, such bundled policies should not be a part of your overall insurance needs.

Floating rate deposit and reinvestment of interest: Most FDs are given at fixed rates for the specified time period. But some banks and nonbanking finance companies (NBFCs) have deposits where the interest rate is floating in nature. For instance, HDFC has a floating rate deposit where the interest rate is declared every quarter.

Another facility some banks offer is reinvestment of interest amount at the prevalent rates. Let us say you are earning Rs 2,000 interest every quarter. The bank will start a new FD with this amount at the prevailing rates.

No penalty: FDs are meant for a certain period of time. At the same time, if the depositor withdraws before the maturity, the institution levies apenalty. In such a case, the overall return suffers. For example, if a three-year deposit at the rate of 8 per cent is broken after one year, the rate available could come down to as low as 5 per cent.

However, some banks have launched products that do not reduce the rate of interest if the FD is broken in the interim. For investors who are seeking flexibility, such deposits can come quite handy.

Time period flexibility: Many of us take an FD for aparticular goal. It could be anything from purchase of an expensive item to child's marriage. There could be a possibility that these plans are postponed and the depositor might need to extend the tenure of his/her investment. One option in such a case is to wait for the deposit to mature and then reinvest it. But there cannot be surety of interest rate in the future. There are banks that have started providing FDs that allow investor to increase the time period of investment without major changes in other conditions.

Adding and breaking deposits: FDs can lead to a large amount of paperwork if a person makes multiple deposits of smaller denominations. This is usually done by investors who require money at various stages in future. They do not want to deposit everything in bulk and then break the deposit.

Banks have introduced products where a bulk deposit is divided into deposits of smaller denominations according to the investor's needs.

Such deposits ensure a higher earning benefit. At the same time, there could be a facility to add investments easily so that administration does not become a very difficult task.

Popular posts from this blog

ICICI Prudential Dynamic Plan Invest Online

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   ICICI Prudential Dynamic Plan             Invest Online This fund does remarkably well during falling markets, but fails to show the same prowess during a rising market. The fund sticks to its mandate to adapt to the dynamic nature of the market by shuttling between debt and equity. It takes aggressive asset calls in equity when the market surges by investing in quality mid-cap stocks. At the same time, it adopts a defensive strategy by investing in debt and cash when markets get overvalued, making it a good long-term choice.     For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call     Leave a missed Call on 94 8300 8300   Leave your comment with mail ID and we will ...

Lump Sum or SIP?

Invest Mutual Fund Online     You have a lump sum in hand and you wish to invest in equity funds. However, you have heard a lot of talk about investing in equity funds through Systematic Investment Plans (SIPs) because they help average costs, ensure you do not ill-time the market, and help you invest in small sums, besides giving you many other advantages. So, should you invest the money you have in hand in one go, or let it remain in your bank account and then do an SIP? There is no harm in investing a lump sum amount. For all you know, compounding, over the long term, could work better with lump sum. However, make sure you fulfill all of these three criteria if you want to invest in one go. Else, SIP is the way to go. #1: You invest for the long term According to past data, ideally, if you have a time frame of 12 years or more, you can consider lump sum investing (provided you satisfy the other two conditions that follow). So, what is the sanctity behind 12 years? Is it because only...

ICICI Lombard to provide weather cover in 10 states

ICICI Lombard General Insurance Company has been given the mandate to provide weather-based crop insurance for rabi season (2010-11) in Madhya Pradesh, Bihar,Tamil Nadu, Karnataka, West Bengal, Chhattisgarh, Jharkhand and Himachal Pradesh.    The insurance company will cover 69 districts — 30 loanee districts (farmers who have taken loans) and 39 non-loanee districts. The major crops that ICICI Lombard covers for the season are winter paddy, cotton, wheat, mustard, barley, maize, onion, potato, tomato, lentil, peas, arhar, jowar, fenugreek, coriander, cumin, methi, isabgol, brinjal among other crops.    Weather-based crop insurance provides cover against weather-related risks such as excess or deficit rainfall, variations in temperature and fluctuations in humidity. This scheme facilitates immediate compensation based on certified data collected from independent third party bodies such as Indian Meteorological Department ( IMD ) and National Collateral Management Services Ltd. ( NC...

Mutual Fund Review: Reliance Regular Savings Balanced

Reliance Regular Savings Balanced fund has shown great resilience during market crash After a shaky start, this fund has established itself as a strong contender in this space. In the past three years it has ridden the market well by not only delivering during the market run-ups but also displaying resilience during the crash. In 2008, it witnessed the second lowest fall among its category and last year it was amongst the top three performers with a return of 76 per cent (category average: 61%).   The poor underperformance in 2006 can well be credited to the low equity allocation of the fund, which stood at just over 10 per cent for only four months that year. Though the fund has the leeway to go up to 75 per cent in equity, it has never touched that limit. In fact, it has exceeded 70 per cent in just five months in its entire history. During the crash of 2008, the fund managers had no problem going right down to 54 per cent (equity exposure). Fund managers Omprakash Kukian and A...

Tax Returns: Myths and facts of filing your Tax Returns

THE fiscal year has ended and many choose to make tax-filling. Despite this being a regular, annual ritual, several tax payers have some misconceptions, some of which are listed below: Misconception No. 1 Filing tax returns is a complex and cumbersome process. I need a Chartered Accountant to help me file my tax returns. Contrary to popular belief, preparing and filing tax returns is actually quite simple. If you have a digital signature you can accomplish the entire process sitting at home on your computer thanks to the e-filing facility on www.incometaxindiaefiling.gov.in. Alternatively, you can submit the returns online, print a one-page receipt, sign it and drop it off at the income tax office within fifteen days of submitting the returns. No documents are required to be submitted with the receipt. However, if you want help, there are several third party service providers who offer tax preparation and filing services for a fee as low as Rs 200. Misconception No. 2 The interest I p...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now