IS FIXED DEPOSIT A LUCRATIVE INVESTMENT CHOICE????

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 By Dr.S.Johnsi



Businesses as well as individuals learnt the value of money and the importance of savings during the pandemic like never before. The sudden announcement of lockdown, job loss and salary cuts led to personal financial crisis. Even after the lockdown many small businesses are closed and some have even slowed down. People have now realised the importance of savings as well as safe investments. Among the various alternatives, the oldest, safest and the most preferred investment choice is fixed deposit.

 Investors diversify their investments into fixed income and variable income investment sources. Fixed deposits fall into the first category and it provides a regular and fixed return to the investors. Investors prefers to invest in risk free investment avenues like fixed deposits since the interest rates offered on fixed deposits are higher compared to the savings account balances.

 Features of fixed deposit

1.      It is a safe and preferred investment option.

2.      It offers higher interest compared to savings bank account

3.      The investment tenure is flexible

4.      Tax saving Fixed deposit scheme offers tax exemptions

5.      Special interest rates are applicable for senior citizens

6.      Loans can be availed against these deposits

7.      Each depositor is insured upto a maximum of 5 lakhs

 Fixed deposit schemes are offered by banks, post office and corporates. All private sector, public sector, co-operative banks and foreign banks are covered by deposit insurance. Hence fixed deposits made in banks are highly secured compared to corporate deposits. Even though Corporate fixed deposits are not covered under DIGIC insurance cover still it is comparatively attractive since it offers significantly higher interest compared to the bank deposits. 

Fixed Deposit Rates of Large Banks/Small Finance Banks/Corporates and Post Office

Large banks

FD - Interest rate

1 Year

(%)

2 Years

(%)

3 Years

(%)

5 Years

(%)

State Bank of  India

4.4

5.00

5.1

5.3

HDFC Bank

4.9

5.00

5.15

5.35

ICICI Bank

4.9

5.00

5.2

5.4

AXIS Bank

5.1

5.25

5.4

5.4

Kotak Mahindra Bank

4.75

5.15

5.3

5.3

Small Finance Bank

 

 

 

 

Ujjivan Small Finance Bank

6.5

6.5

6.5

6.75

Jana Small Finance Bank

6.25

6.5

6.5

6.75

Equitas Small Finance Bank

5.4

6.4

6.65

6.40

AU Small Finance Bank

5.25

6.25

6.5

6.5

Capital Small Finance Bank

5.25

6

6

6.00

Corporate Fixed Deposit

 

 

 

 

Kerala Transport Development Finance Corporation Limited

8.5

8.5

8.5

8.25

Bajaj Finance

8

8.15

8.75

 

Shriram Transport Finance Ltd

7.61

7.70

7.85

8.08

Mahindra Finance Ltd

7.5

7.5

7.55

7.55

Hawkins Cookers Ltd

7.5

7.75

8

 

Post Office Deposit

 

 

 

 

Post Office Time Deposit

5.5

5.5

5.5

6.7

 Strategies to choose the right Scheme

By comparing the various fixed deposit schemes, investors might be confused to choose the right scheme. The following two strategies can help the investors to choose the scheme which offer better returns

1.      Rule 72 and

2.      Fixed Deposit Ladder Strategy

 Rule 72

Rule 72 can be used in investment planning. Rule 72 is a simple method to determine the investment doubling time. It is the years required to double the investment given a fixed interest rate.

If, for example, your deposit earns 8 percent annual interest, divide 72 by 8 to get the number of years within which your money gets doubled. In this case it is 9 years.

 Fixed Deposit Schemes and the Doubling Time

Fixed Deposit Schemes

Annual Interest Rate

(%)

Rule 72

Number of Years to double

State bank of India

5.4

72/5.4

13.33

Ujjivan Small Finance

6.75

72/6.75

10.6

Kerala Transport Development Finance

8.25

72/8.25

8.72

Post Office Deposit

6.75

72/6.75

10.6

 Fixed Deposit Ladder strategy

Laddering is an investment technique with which different fixed deposits instruments with different maturity periods can be used to invest or deposit your money. In laddering one need not invest in a single Fixed Deposit scheme rather the total fund can be segregated and invest in different schemes to get better returns. Diversification helps to mitigate the risk of interest rate fluctuations and earn better returns.

 HAPPY INVESTING!!!!!


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