The Right Time, Strategy And Amount For Investing In Fixed Deposit Schemes

There is a right time to invest in fixed deposits. There is a right strategy and right amount to invest in FDs too. Both of these will depend on your financial situation though. Yet, there is a way to optimize it under normal circumstances. Hence, you should always consider before investing in fixed deposits.

When is the right time?

When high risk investment tools are too volatile, invest in FDs. There are multiple reasons for this kind of an action plan. Local events and international low cues can send the stock market and the mutual funds stumbling down. This is the time to invest in safe tools like fixed deposits. Do not risk your funds in such challenging times.

What is the right strategy?

Today’ fixed deposit market is highly competitive. The right strategy for a FD, ideally, is to optimize all the important aspects of a fixed deposit scheme . You need to understand them and optimize them as per your financial priority. These important aspects are:

• Interest – This is the most important one. Yet, there are cases where people prefer to open a fixed deposit account without the highest interest because of the priorities mentioned below.

• Premature withdrawal penalty – This is an expense most of us will like to avoid. If you can need the invested funds again, you must invest in the organization that offers no or low penalty.

• Return strategy – The available options are monthly, quarterly, annual interest payment or reinvestment option. The most suitable choice for your requirement should be available.

• Overdraft facility – Most business owners look for a fixed deposit with this facility. It allows them to enjoy the returns and use it as collateral in troublesome times.

• Convenience – Most people prefer to invest with their retail banking partner. However, today, nationalized and private banks allow customers to open a fixed deposit account through the online medium, which is the most convenient and rewarding choice for busy people.

What is the right amount?

The Reserve Bank of India (RBI) mandates that nationalized and private banks must insure all the fixed deposits up to Rs. 1,00,000/. If you invest Rs. 2 lakh, you are insured up to 50% of your amount. If you invest Rs. 1, 00,000 in two different banks, you are insured 100%. If you want to invest in this popular and safe financial product, the right amount is in multiples of Rs. 1, 00,000. This strategy lowers the risk and helps retain the returns.

Understand Taxes On Fixed Deposits

Returns on a fixed deposit aren’t tax free. You need to be aware of that to understand how income tax will affect you when you invest in this financial product. Income tax rules and regulations state that you will pay tax on the fixed deposit interest. Though it is not exactly a necessary part of the financial product, you can be smart about it and try avoiding it. How exactly can you do that? Start by studying:

The rules and regulations:

• Returns on fixed deposits come in the form of interest, which can be deposited into your savings account on a monthly, quarterly or annual basis.

• If you earn interest amounting to more than Rs. 10,000 per year, the tax will be deducted at the source. You can reclaim the deducted amount by submitting the right documents along with your income tax returns.

• Even if your interest is less than Rs. 10,000, you will need to add the interest into the taxable income when you file your income tax returns.

These are basic taxation rules for fixed deposits, whose application may vary on a case by case basis. Primarily, you will use two strategies for income tax. So, here are few strategies that you can use, if applicable.

• Announce your income

If you can demonstrate that you have no taxable income, you can submit the 15G form that clarifies this. With the submission of this form, you will establish that you do not have any taxable income. Therefore, the deducted amount will be returned to your bank account after the income tax return processing is completed.

• Distribute Fixed deposits

You must be strategic while making fixed deposit investments . There are three ways that you can distribute your FDs. Though you can use them together, you need to plan your fixed deposit investments accurately to benefit from them:

o If you invest the amount in a particular organization and the interest on the fixed deposit scheme does not exceed Rs. 10,000, then the organization will not deduct any TDS (Tax Deducted at Source). Then you are at liberty to show your income tax returns in such a way that you do not need to pay any income tax.

o If you time your investments to avoid an interest of Rs. 10,000 in a single financial year, then you can show your liabilities against it to nullify your due income tax for your investments.

o If you are paying your income tax as HUF, then you can create separate fixed deposit accounts – on individual names – so that you can avoid getting Rs. 10,000 in the name of your HUF identity while investing more funds into this financial tool.

Combine all these tools and strategies for your financial planning and enjoy the rewards.

Pros And Cons Of A Fixed Deposit

When you refer to the advantages and disadvantages of financial tools, you typically focus on the returns and the risk. Traditionally, fixed deposits are considered low-risk & low-returns products. It is important, though, to evaluate the implication of this term for your financial future.

Benefits of a fixed deposit:

• Stable income:

Fixed deposit schemes in India are competitive products. Different organizations offer attractive packages wherein you can enjoy returns on a monthly, quarterly or annual basis. Once you submit the money into the organization, they are bound to give you the interest as per the pre-determined percentage. Make the fixed deposit for a long term like 10 years and you can continue to gain the same amount as interest for the next 10 years. There are very few financial tools that can offer you that.

• High interest possible:

In spite of getting touted as a low returns product in the investor community, you can enjoy higher returns with company fixed deposits too. So, along with the security of the fixed deposit schemes, you can get higher returns as well. However, these lucrative offers are not always available like traditional fixed deposits since they are often limited period offers.

• Right choice for bearish market:

In this market, a lot of stocks and mutual funds do not make great earnings. Within an industry-based or economy based recession, it is risky to put money in any kind of high-risk product. The smart money says that during this time, you should invest in a fixed deposit account as the stability can be a far more rewarding investment choice.

Cons of a fixed deposit:

• Limit of income:

Within the range of the returns, check the potential for earning from mutual funds and equity stocks, as well. Through capital gains, it can be significantly higher. There are stocks that offer 100% growth over time. Though, it is neither easy nor obvious, it is possible. Fixed deposits can never offer more than 8% to 10%, which is much lower, yet consistent.

• Low liquidity product:

If you withdraw money prematurely from your fixed deposit account, you will have to pay the penalty. You cannot skip this part as it is a part of the contract. Though the liquidity is much higher than the real estate or the stock markets, premature penalty can cause losses for sure.

Bearing all this in mind, it is advisable to clearly understand this product holistically and using it to your advantage.

How To Identify The Best Home Loan In India?

When you are looking for the best home loans in India, you need to perform more than just a basic online research or a credit score report. You need to evaluate all the possible opportunities to identify the most suitable one. Homeloans are these multi-faceted financial products that tend to vary in minor details like 0. 23% change in interest rates, type of repayment or the type of interest rates. However, these details can make a long term impact. So, consider the following steps to select the best housing loan for you.

Identify the comparable criteria for home loans

When you research about home loans in India, you need to understand how to assessthe prospective home loans from two different perspectives – what you can afford and what you can qualify for. So, identify the potential range of interest rates that you can manage to pay and the home loan offers that you can meet the requirements for. This will navigate your search in more precise premises. You obviously need to improve your credit score before applying for a home loan in India. Alternatively, you need a repayment plan that suits your earning capabilities. So, fine tune your search to housing finance companies in India whose home loan eligibility criteria you can meet. Then select the home loan you can manage in terms of EMIs, repayment options, type of interest rates, prepayment charges, etc.

Research the personal finances

When you need to determine the best home loans in India, you need more than just lowest interest rates. You will need the home loan that is tailored to suit your financialsituation. You have assets, liabilities and accounts payable. So, in the long run, you need a home loan repayment schedule that you can maintain without extending your means. For most borrowers, their home loan EMIs is about 30% of their in-hand salary. It can be easy or difficult to pay based on your month-on-month account payables. Majority of the people research about home loans in India; however, they fail to investigate their personal finances to identify how these loans will play out for the next 20 to 30 years. Hence, understand the implications of prepayments, foreclosures and loan defaults beforehand.

Watch out for all expenses and loop holes

This is the last but the most important criterion. If you receive a home loan offer, most borrowers are often too excited to even go through their home loan agreement for terms and conditions. However, it is certainly vital to do so since it allows you to accept, negotiate or reject the offer basis your long term requirement rather than keeping yourself vulnerable to the fiscal threat.