Myths Busted: Fixed Deposits
Time deposits are risk-free investments that also offer the opportunity to earn good returns. Therefore, such deposits have been widely used by Indians since decades to earn a regular income and build wealth over the long-term.
It is important that you have the accurate information related to such investments to ensure you have a positive experience. Here are four common myths associated with time deposits that are busted:
Company deposits are not safe
When compared to banks, company fixed deposits (FDs) offer a higher rate of interest. You may consider these riskier; however, this is a common myth. You may compare the ratings for the company FDs issued by leading credit agencies. Mahindra Finance fixed deposits enjoy good ratings ensuring their reliability and stability.
Company FDs interest rates are guaranteed and remain unaffected by market rates. Moreover, senior investors may enjoy a higher rate of interest, which makes these a good investment option.
Tax payment is mandatory
This is true only if the income in the financial year exceeds INR 5,000. This limit increases to INR 50,000 if you are a senior investor. Moreover, if you do not have other income sources or your total income is less than the minimum tax bracket, you do not have to pay taxes on FD income. To ensure that tax deducted at source (TDS) is not applicable, you must submit Form 15G or 15H.
Higher frequency results in more income
Non-cumulative fixed deposit schemes allow you to choose the frequency of the interest payments. If you choose a monthly payment, it does not mean that your income will be higher. The financial institutions calculate the annual FD rates and these are then divided in equal installments based on your chosen payment frequency.
The interest rates on cumulative FDs are often lower when compared to non-cumulative deposits. The interest earned on your initial investment is reinvested when you opt for a non-cumulative FD. Therefore, such interest reinvestment provides the opportunity to build a good corpus in the long-term.
Breaking FDs is tough
If you need to break the fixed deposit before maturity, the procedure is simple and quick. However, the institution may levy a premature withdrawal penalty and it is recommended you check this before breaking the FD.
When you invest in an FD, you will receive the principal investment along with the interest on the maturity date. However, the premature withdrawal amount will be deducted from the maturity proceeds. You may also avail of a loan against your FDs. All these features and benefits make FDs a popular investment option.