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Investorís Walkthrough To Manage Tax Saving Fixed Deposits

By Expert Author: Neha Sharma

With the right investment strategy in place, you can benefit greatly by investing your funds in a fixed deposit account. Most people donít consider it as a great investment tool, though. That is primarily because this product is seen as a low-risk and low-reward tool. That image, however, takes nothing away from its popularity. When looking at investment portfolio holistically, it is actually advisable to invest in some of the low-risk financial tools as well to allow for some security. Keeping that in mind, it is a good option to diversify your portfolio with this product as they offer high liquidity and good rate of interest.

The first step needed while investing in this account is to look at the fixed deposit interest rate being offered by most financial partners. By and large, most banks and financial institutions now offer a fixed deposit interest rate ranging from 7 to 9 percent. There are a few cooperative banks in the market, though, which do offer the highest rate of interest and are worth looking into. One of possible the drawbacks in the latter, though, are that these organizations may not have scheduled branches. They also tend to be much less reliable. Keeping this in mind, it is advisable, after you are done comparing interest rates, to check whether the bank you have or want to have dealings with is a nationalized or private one.

While most people believe that they donít need to anything else while investing here, there are a few other important factors that need consideration. What are the charges for the premature or partial withdrawals, for example? Would you choose monthly or quarterly payout for your interest? How much loan can you take on this fixed deposit, if needed? Why would these factors be important? Answering these questions may be important as you can use the information garnered to your advantage. If you have invested a substantial amount into your FD, you can then invest monthly payouts for a recurring deposit or SIP mutual fund plan. This strategy in turn will help you earn much more reward from the amount.

If you are a businessman, this kind of a product is a great opportunity for taking a secure and low-interest loan on FD. The advantages of these loans are that, while they have much lower interest rate comparatively, they come with a much higher approval rate when compared to non-secure loans such as personal loans. If your bank allows you to invest into a FD instrument online, the convenience of online investment and online withdrawals on maturity will allow you to handle your dealings easily.

As with any other financial tool, though, this one is not perfect either. A major limitation is the fact that any premature withdrawals will cost you. In addition, the interest earned on this account is fully taxable, which at time scan be applied in form of TDS i.e. tax deducted at source. If you qualify for a higher income bracket, it can cost you more in terms of taxes. This is one of the main reasons why many people prefer to invest in debt instruments in the market. However, the benefits of having a fixed deposit account cannot be discounted. Thus, it is advisable to weigh all your options and make the right investment for yourself and your family.

Author Bio :- The author is a seasoned writer on finance topics, and her articles help readers more efficiently manage money matters. She writes about a variety of topics covering savings account, current account, fixed deposits, tax saving FDs, recurring deposits etc.

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