If you are looking for best returns on an investment the first option that everyone will ask you to do is to invest it on a Fixed Deposit. As depositing in (FD) fixed deposit schemes are the best form of investment currently available in the country.
But before locking your amount for a fixed amount of time there are important things to consider. The below-mentioned factors that would help you decide how to invest your funds in a fixed deposit scheme.
There are Five Factors to Consider
- Fixed deposits are not totally harmless: Even though most of us accept that fixed deposit schemes are 100% safe and protected but it is not true. As in corporate deposits can have unsecured loans and doesn’t promise anything to an investor. While many banks offer deposit cover and credit guarantee business for deposits up to one lakh per customer overall bank branches. In this regard, the smart way to invest in FD schemes is to split the investment into 3 or 4 small investments into various banks. Such break in investments will offer a lot of reimbursement, while you can effortlessly break a single fixed deposit at the time of any crisis while the cash keeps increasing in other investments.
- Laddered investment cycle to earn better benefits: It is advised to step your investments in FD schemes with different terms. This laddered layout of investments will help you lower the jeopardy of indulging in all your funds for extended periods of time at a single rate. For example, if you are investing four lakhs in a fixed deposit, divide the amount into four equal amounts and deposit INR 1 lakh for 1, 2, 3 or 4 years as fixed deposits. Doing this you will get the amount after maturity every year which in turn can be invested into the four-year fixed deposit. This way, you can guarantee the liquidity as with one deposit maturing each year. In addition, fixed deposit interest rates tend to shift in multi-year cycles; these laddered investments will help you balance out earning with better income with much lesser risk.
- Choose for right term – avoid premature withdrawal penalty: While we all know that banks and corporate houses offer higher interest rates on fixed deposit schemes. This high-interest rate involves an individual to choose for the long term fixed deposit account. On the other hand, sometimes it may not go as planned in case of an emergency, as we need to pay a premature penalty if we break the deposit before time. Hence, it is advisable to break the funds into three to four different investments at different term periods as mentioned above. In this situation, you can split any one deposit at the time of an emergency allow in paying a lesser penalty, while your money still keeps rising through other FD investments.
- Before Investment look TDS and other tax laws: Banks and companies deduct the tax at 10.3% if the interest rates that exceeds INR of Ten thousand in a year. If entitled more than the advanced income range as per Tax laws in India, you will be at liberty to pay further tax on this income. So, when you are filing your tax return, you are entitled to mention the income from fixed deposits and bonds. It does not matter whether TDS is deducted or not. Even if you have invested in an increasing deposit, each year the tax must be paid.
- Spouse/children will be considered as your income from the FD: One cannot avoid paying taxes when they are investing funds on a spouse. One can excuse then tax on the funds given to your spouse or children when it is provided as the interest is often considered as the income of the giver and tax as per laws. However, there’s an immunity of INR of Thousand five hundred a year per- child for a maximum of 2 children.