Understanding the Variety of Fixed Deposit Options

The Indian financial market is a dynamic space that offers a wide range of investment options for all types of investors. One such niche investment option is the fixed deposit. It has been a favourite of conservative investors for generations now. However, despite an increasing number of investors preferring to add market-linked instruments to their portfolios, the FD continues to remain relevant.

If you are an investor who is comfortable with taking on risks, a significant portion of your portfolio may be composed of equity. However, FDs can help counter the risk in your portfolio by offering assured returns at predetermined rates of interest. What’s more, there are different types of fixed deposits that you can invest in.

At the broadest level, you have bank FDs and corporate FDs. But even within these categories, there are various FD investment options, as outlined below.

The Different Types of Fixed Deposits Available in India

Here is a closer look at the different types of fixed deposits that you can choose from, depending on your investor profile and your financial requirements and goals.

1. Standard Bank Fixed Deposits

These are regular bank fixed deposits where you deposit a lump-sum amount in your bank FD account. The common features of this type of fixed deposit are outlined below.

• The deposit is made for a fixed tenor.
• The tenor for these fixed deposits can range from 7 days to 10 years or so.
• The bank offers interest on the deposit amount at a predetermined rate.
• The interest is typically reinvested in the FD account, giving the benefit of compounding.
• The bank deducts tax at source from the FD interest if the annual interest exceeds Rs 40,000 (or ₹50,000 if you are a senior citizen).

2. Non-Cumulative Fixed Deposits

These fixed deposits work quite like regular or standard bank fixed deposits. The key point of difference, however, is when the interest is paid out. In regular cumulative FDs, the interest is paid out at maturity along with the principal.

However, in the case of non-cumulative fixed deposits, you can opt for periodic interest payouts at regular intervals. The frequency of the payouts can be monthly, quarterly, semi-annually or annually, depending on the bank’s terms and conditions.

3. Senior Citizen Fixed Deposits

As the name indicates, this type of fixed deposit is specifically offered for senior citizens, who are aged 60 years or more. Senior citizens can also choose to either have the interest reinvested in the fixed deposit or paid out at regular intervals.

However, what typically sets senior citizen FDs apart from regular FDs is the additional rates of interest on the former. Most leading banks in India offer an additional 0.25% or 0.50% on the deposit amount for senior citizens’ FDs.

So, for example, say a bank offers an additional 0.50% on FD interest rates for senior citizens. Now, if the regular rate of interest for a particular tenor is 7%, senior citizens will enjoy interest at the rate of 7.50% per annum instead.

4. Tax-Saver Fixed Deposits

A tax-saver fixed deposit is a special kind of FD that offers tax benefits u/s 80C of the Income Tax Act, 1961. Check out the key features of this type of fixed deposit below.

• These fixed deposits have a lock-in period of 5 years.
• The amount deposited is deductible from your total income up to ₹1.5 lakhs.
• The interest on this type of fixed deposit is taxable.

5. Sweep-In Fixed Deposits

Also known as flexi fixed deposits, these FDs are linked to your savings account. When the balance in your savings account exceeds a predetermined threshold limit, the excess sum is transferred or swept into the flexi FD. This allows you to earn interest at higher rates on the amount in the FD.

And when the balance in your savings account falls below the limit, the amount in your FD is transferred back into your savings account.

6. Corporate FDs

As the name indicates, corporate FDs are fixed deposits that are offered by corporate entities like non-banking financial companies (NBFCs). They carry a higher level of risk than bank FDs, but they also offer higher rates of interest. This makes them suitable for investors who are comfortable taking on a slightly higher level of risk.

To help investors make a more informed decision about corporate FDs, credit rating agencies like CRISIL rate these fixed deposits as per their risk levels. You can compare the ratings and choose corporate FDs that are on the lower end of the risk spectrum, while still enjoying higher returns than those offered by traditional FDs.

Conclusion

The bottom line is that there are several different types of fixed deposit options for conservative, moderate and aggressive investors in India. So, no matter what your risk profile may be, you can find a type of FD to suit your investment portfolio.

And whichever type of FD you may choose, ensure that you plan your deposit carefully and align it with your investment goals. This way, you can achieve your financial targets as required, while still earning guaranteed returns on your investments.