Friday, 9 October 2020

Why you should not invest in Fixed Deposits?

Before we know "Is it good to invest in Fixed Deposit or Not", First we have to Know about What is Fixed Deposit?

What is a Fixed Deposit?

Fixed deposits are a funding tool provided by banks and non-banking financial corporations, in which you'll be able to deposit cash to get a better rate of interest than a financial savings account. You'll be able to deposit lump sum cash for a set interval in a fixed deposit, which varies for every financier.

As soon as the amount is deposited with a trusted financier, interest begins accruing based on the interval of the deposit. Usually the norms set for FD can't be withdrawn earlier than maturity, however, you may withdraw cash after paying the prescribed penalty.

Features of Fixed Deposit

Investors can earn high interest on their more money by making a fixed deposit. Fixed deposits will be deposited only once in the account, if you wish to deposit more money, you have to open another account, though the fixed deposits have low liquidity, However you get increased rates of interest, which is even more on the fixed deposits of the company.

Fixed deposits will be renewed easily. According to the Income Tax Act, 1961, the tax earned on fastened deposits is deducted on the basis of the principal amount.

Here are the few points where we will know why we should not invest in a fixed deposit?

If the rate of interest is higher than the rate of inflation, then there may be an actual benefit in investment. If the rate of interest on FD is less than the inflation, then the purchasing power of the amount you get at the time of maturity could be lower than the amount invested. NBFCs could have higher rates of interest from the bank.

Fixed deposit losses are

Low Interest, Higher Investment, Better Options, Low Income Tax Available

Low Interest

Even though Fixed Deposit earns extra interest from a savings account, it's generally less than the rate of inflation, due to which the real income is very little or no.

Better investment options available

Although Fixed Deposit keeps your cash safe, however if you're keen to take the risk, you will get higher returns in mutual funds, stock market and real property.

Income Tax

The interest you earn from tax-saving FDs can be taxable. Interest on all forms of Fixed Deposit will get added to your taxable income. Your bank can deduct TDS on the interest paid on all your fixed deposits.

Then there is a matter of liquidity, whereas your cash is locked up with the bank, it isn't easy to withdraw at a moment's notice.

In truth in case you withdraw before the agreed duration, you can be penalized. Also, there isn't a tax profit on this funding, not like the infrastructure bonds or the National Savings Certificates (NSC).

So, even from a taxation point, this isn't the best of funding options
Some banks charge as much as 1 per cent, in case you beak the deposit early, which means you need to both make sure that you spend money on a number of deposits of small amounts.

Should you spend money on a fixed deposit?

After weighing the benefits and drawbacks of fastened deposits, we might suggest you spend money on them, in case your danger appetite is very low. For instance, when you have tension for risk, it might be better to spend money on different instruments like shares, debentures, and so on. It's because they have a tendency to give you higher returns than bank fastened deposits over a time frame.

However, if you're danger averse stick with fastened deposits as the benefits far outweigh the disadvantages. Additionally, if you're over 50, your potential to take danger could be low. At such a time it's best to remain invested in fastened deposits. After we say fastened deposits, it's also possible to have a look at other instruments that yield fixed interest like the Public Provident Fund.

We are also advising investors at the moment, if you have a look at fixed deposits, make investments with a long term time-frame. You profit from compounding, where the maturity is increased over an interval of say 48 to 60 months, as in comparison with 1 month.

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