What is a Bank Fixed Deposit?
A fixed deposit or term deposits is an saving option offered by banks wherein a depositor can invest their money for a fixed tenure & rate. The rate of interests depends on the duration of the deposits & the banks.
- Depositor can earn interest on surplus funds available in the account
- Encourages saving habit
- Only one fixed deposit account can be opened at a time. The depositor can open multiple accounts for other such deposits
- The deposit can be renewed or withdrawn up on maturity
- As per traditional scheme, the interest earned on FDs gets credited to the depositor’s account either on monthly or quarterly basis, as opted by the account holder
- Premature withdrawals are not permitted but in case of emergency, banks allow closure of FD accounts. The deduction charges will be levied (percentage of charges may vary from bank to bank)
Tax Saving FD
The option gives complete capital protection with additional interest income for 5 years at a similar rate to 5 years FD.
However, there is no premature withdrawal (allowed only in case of death)
Bonds are basically a way for companies & governments for issuing capital for expansion, infrastructural projects, etc. By issuing bonds to the public, the organizations & Government can raise money for their projects. In simple terms bonds are like a loan for which you are the lender. The organization who sells the bonds is known as issuer & the holder is called as an investor. The bonds usually have a defined term or maturity, upon which the bonds can be redeemed.
Investment in fixed income securities counterbalances high-risk investments in a portfolio and serves to even out returns in times of volatility.
They offer a potentially attractive and regular income avenue as the rate of interest is fixed (in most cases but not all) till maturity.
YTM (Yield to Maturity):
By investing in bonds and holding them till redemption, you can earn maximum returns in the form of regular interest plus the face value amount on maturity.
Protect from volatility:
While fixed income securities generally do not offer the high returns potential of other investments, you are spared from the volatility common in other markets as its price fluctuation is relatively lesser than equity stocks.
Fixed income securities provide the flexibility and liquidity required to construct a portfolio customized to your specific investment objective. If required, low-risk fixed income instruments like government bonds can be sold at short notice.
Fixed income securities represent a loan from investors. As these investors are creditors to the company, in the eventuality of the company being winded down, they have priority over shareholders
Here is a list of top tax free government and private bonds running in the market. Each of them gives information about coupon rate, last traded price, etc.
Tax Free Bonds
The income by way of interest on these Bonds is fully exempt from Income Tax and shall not form part of Total Income as per provisions under section 10 (15) (iv) (h) of I.T. Act, 1961. These bonds are generally issued by Government Backed entities and thus have very low default risk.
Other General Features are:
These bonds can be applied in Physical or Dematerialized mode
- These bonds generally come with long tenures of 10, 15 and/or 20 years, however, these bonds can be traded on the listed exchange if applied in demat mode
- There is no Cap on investment made in these bonds
- Retail Individual Investors get higher interest rates, so for an Individual, HUF to be eligible for higher rates the maximum investment amount is Rs.10 Lakhs
- The interest offered is benchmarked to the Government security of similar maturity, subject to conditions laid down by CBDT.
- These bonds however, do not provide any additional tax benefits
- No premature withdrawal.
- Can not pledge for taking loans
Long term debt investments can generate steady returns over inflation. Bond investments carry interest rate risk.
The bond investments are for persons looking for principal protection, steady income or tax savings. Investments in the bond can be done through AAA rated bonds by PSU, Govt. and Corporate NCDs.
- Interest rate risk.
- Interest earned is taxable.