Fixed deposits (FDs) have continued to be a favored investment among risk-averse investors. However, with the emergence of other types of financial products, there have been a number of myths associated with the way individuals look at FDs. It is time to de-mystify the five common myths about FD investments and know the truth behind them.
1. FDs Don’t Offer Good Returns
There is a general perception that FDs do not provide good returns as compared to mutual funds or shares. Although these market-based instruments are at times more successful, they are also risky. Instead, FDs offer guaranteed and consistent returns, usually limited to 7 or so per annum, depending on the tenure and investor type. This stability and peace of mind make FDs ideal, especially for conservative investors or retirees.
2. Only Banks Offer FDs Safely
It is generally thought that only banks should be relied upon in case of fixed deposits. Nevertheless, non-banking finance companies (NBFCs), such as Mahindra Finance, offer secure FD options. Their FDs are rated as being safe by the major credit agencies, thus securing your capital and returns at competitive interest rates.
3. Cancellation of an FD is Not Easy
Premature withdrawal of an FD, i.e., withdrawing before the tenure ends, is believed to be a bureaucratic nightmare. However, the reality is opposite and financial institutions make it easy to withdraw before the tenure ends. However, it may come at a nominal cost. Many institutions further offer flexibility of management or partial withdrawal to investors, so you can still have some investment.
4. FD Interest is Fully Tax-Free
The other myth is that FD interest is not taxed. The fact is that interest on FDs is subject to tax and fall under the header of ‘Income from Other Sources’. Additionally, it is subject to TDS deduction based on the annual interest you earn. As per the Income Tax Act, financial institutions have to deduct TDS if the total annual interest is more than ₹50,000, ₹1 lakh if you’re a senior citizen. But you can minimize the tax burden with strategic planning as laddering deposits or selecting tenures that are tax-saving.
5. You Need a Big Lumpsum Amount
Many people think you need to have a good amount to invest in an FD. However, that’s not the case, and you can start with just ₹1,000 or less, depending on the financial institution.
Benefits of Fixed Deposit Investment
- Guaranteed returns: FD interest is preset and not affected by market fluctuations.
- Flexible tenures: You can invest for 12 to 60 months or more.
- Safety: NBFCs such as Mahindra Finance are highly rated with regard to safety and provide safe investment packages.
- Benefits for senior citizens: Increased interest rates on elderly investors guarantee increased income during retirement years.
- Accessibility of online services: Mahindra Finance FD page provides access to online services that ensure making investing paperless and easy.
FDs are an investment pillar that has been tested through time and can assuredly give a person stable returns and low risk. The largest number of myths concerning FDs are based on misinformation and not facts. Likewise, by knowing how fixed deposits actually operate, and looking into the good alternatives of trusted business corporations such as Mahindra Finance, you can leverage them well as part of a long-term, diversified financial strategy.