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- The deposit can be renewed or withdrawn up on maturity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)
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.
- 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.