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 ...

Understanding Your Cibil Credit Information Report

   WE ARE all familiar with the anxiety and uncertainty that we feel when applying for a loan. After all, it's the lender who decides whether we can own our dream home, our first car, or whether our children can pursue higher education. In a nutshell, a better life depends on the lender's decisions.    While other factors do play a part in the lender's decision, the Cibil Credit Information Report ( CIR ) plays a crucial role in a lender's decision to approve a loan application.    Previously, lenders would treat all loan seekers equally. Each applicant, if approved by the lender's internal credit policy, would be charged at the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all the borrowers, in order to compensate for the possible default of a small portion of the loan disbursed. In other words, it's like a professor (the lender) punishing an entire class (borrowers) for the mischief played b...

Mutual Fund Review: ING Dividend Yield

  ING Dividend Yield's small assets enable the fund manager to churn in impressive returns… Strategy The aim of the fund is to invest in stocks which offer a high dividend yield. This fund deploys a value based strategy which aims to gain from investing in fundamentally strong and free cash flow generating businesses. The scheme focuses not only on growth but also on the cash generated by the business, which mostly leads to stable returns even in volatile markets. This fund has a low volatility because of its investment in high yielding stocks. The scheme tries to include stocks that yield dividend above the dividend yield of the Nifty and stocks with liquidity, which throws up a universe of 150 stocks.   Our View Launched in October 2005, this fund invests at least 65 per cent of its assets in high dividend yield stocks. The fund has consistently maintained a mix of stocks across varying market capitalisation, with a higher tilt to mid caps compared to small caps. Howev...

Financial Planner - Do Integrity & Dependability Check

How does one can find value proposition when it comes to financial planning, which is a new area? There is nothing to benchmark it with. So, how does one figure what is the right fee to pay? Look at what you want. You probably want to hire a financial planner to get a blueprint for your life ahead and want to know how to achieve your goals. For creating a tailor-made financial plan, our experience is that it takes 25-30 man-hours in all. Taking an average of Rs 500 per hour for hiring the services of a qualified financial planner like one who has a CFP(CM) certificate, the fee would come to Rs 12,500 to Rs 15,000. But the per-hour rate can be higher or lower depending on the process adopted, the experience and expertise of the planner, etc. That's how planners arrive at their fee. Now, is that value for money? For that you need to find out what benefits you would derive by engaging them. The financial plan will give you clarity, direction and pathway to achieve your goals. Th...

About CRISIL IPO Grading

CRISIL IPO (Initial Public Offering) Grading is an opinion on the fundamentals of the graded issue that reflects CRISIL's independence and expertise. This opinion is expressed as a relative assessment in relation to other listed equity securities in India. The assessment is based on a grading exercise carried out by industry specialists from CRISIL Research. A CRISIL IPO Grade 5/5 indicates strong fundamentals and a CRISIL IPO Grade 1/5 indicates poor fundamentals. CRISIL IPO Grading reflects its assessment of the graded company's equity fundamentals as distinct from an assessment of debt fundamentals. A CRISIL IPO Grade should not be construed to mean a comment on the price of the graded security nor is it a recommendation to invest or not to invest in the graded security. However, this grade is not an opinion on whether the issue price is appropriate in relation to the issue fundamentals. The grade is not a recommendation to buy / sell or hold the graded instrument, or a comm...
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