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

NRIs and direct taxes code (DTC)

DTC Proposes To Do Away With Special Provision That Allows NRIs Liberalised Duration Of Stay In Country      THE new direct taxes code could bring a large number of global Indians under the tax net, as it does away with a provision that allowed individuals to escape tax in any country citing double tax avoidance.    The new legislation, introduced in Parliament on Monday, says an individual shall be a resident of India in any financial year if he is in the country for more than 59 days in that year, and has been has been India for more 365 days in four preceding financial years. A number of Indian industrialists including Vedanta's Anil Agarwal and Essar's Ravi Ruia have acquired non-resident status over the years.    The DTC has only attempted to clean up the provision in line with the laws globally. A phrase "being outside India" in the existing income tax law exempted individuals who stay outside the country for six months from paying taxes. This was prone ...

Stick to Good Fund Manager who Can Multiply Your Investment

A manager may be the difference between the best and worst funds. Here's how you can find the right one    Does a mutual fund manager make a difference to your investment? The answer may not be as easy as you think, since most best-performing mutual funds have moved away from individualistic fund management to process-driven methods, limiting the scope of an individual's role in investment decisions. In fact, many fund managers would speak at length about how the "system" their fund house has in place makes their task of picking stocks easy even though it restricts their freedom. Still, the question is important, especially after recent reports that the Securities and Exchange Board of India ( Sebi ) may ask fund managers to disclose to investors their track record of managing money. Let us take a look at the universe of large-cap funds over the past five years. According to Value Research, an independent mutual fund tracking firm, the topper in the category is DSP...

Tata Fixed Income Portfolio Fund dividend

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)       Tata Mutual Fund has announced dividend under the dividend option of Tata Fixed Income Portfolio Scheme B2 Plan A-DQ, Tata Fixed Income Portfolio Scheme B2 Reg-DQ and Tata Fixed Income Portfolio Scheme B2 Direct-DQ. The record date has been fixed as August 29, 2013. Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com --------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C. Invest Tax Saving Mutual Funds Onlin...

IDFC Classic Equity Fund

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   IDFC Classic Equity Fund IDFC Classic Equity is a large-cap equity fund which currently has assets under management worth Rs. 158.52 crore. It was launched in August 2005. The fund is benchmarked against the BSE-200 Index. Performance YTD 1-Year 3-Year 5-Year Since Inception IDFC Classic Equity 0.93 26.61 6.30 1.01 11.65 BSE 200 1.52 17.31 6.00 1.99 12.98 All figures in % as on January 31, 2013; Returns above one-year in CAGR terms ...

Mutual Fund Review: HDFC Mid-Cap Opportunities Fund

LAUNCHED in June 2007, HDFC Mid-Cap Opportunities Fund was started as a three year closed-ended scheme. It was subsequently converted into an open-ended scheme in June 2010. The fund has been ranked as Crisil Fund Rank 1 in the small & midcap equity category according to Crisil Mutual Fund Ranking methodology over two of the last four quarters and has been present in the top 30 percentile in the category for all the four quarters. Crisil Mutual Fund Rank 1 funds form the top 10 percentile of the ranked universe representing very good performance vis-à-vis category peers. The fund, managed by Chirag Setalvad, has assets under management of ` 1,275 crore as of April 30, 2011 and has outperformed its peers and the benchmark (CNX Midcap Index) in the 1, 2 and 3 year time frames. INVESTMENT APPROACH The fund's objective is to earn capital appreciation by investing in equities of small and mid cap companies. While these companies have a higher return potential than large cap ...
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