Wondering about the various types of FDs available in India? Here’s a quick guide.
When it comes to fixed deposits, many individuals think that there’s only one single type of FD. However, that’s not the case. In fact, there are many types of fixed deposits out there, with each one having their own characteristics. Intrigued? Let’s go ahead and take a look at the various types of FDs that you can currently invest in.
Different types of fixed deposits
Did you kn1ow that there are as many as seven different types of fixed deposits? Here’s a quick look at each of them.
1. Regular fixed deposits
As the name itself implies, these kinds of fixed deposits are just that – regular, with no additional features. The tenure for regular fixed deposits typically start from 7 days and go all the way up to 10 years. One of the advantages of regular FDs is the fact that you can prematurely withdraw your investment at any point in time.
2. Fixed deposits with no premature withdrawal
These kinds of fixed deposits are very similar to regular FDs. The only difference is that while regular FDs come with the facility to prematurely withdraw the investment, these don’t. However, since you’re giving up the ability to withdraw the investment, these fixed deposits come with a slightly higher rate of interest than regular FDs.
3. Tax saver fixed deposits
Tax saver FDs are a special category of fixed deposits that are covered under Section 80C of the Income Tax Act, 1961. FDs falling under this category have a mandatory lock-in period of 5 years and a cap on the investment amount, which is Rs. 1.5 lakhs per financial year. The amount that you invest in a tax saver FD can be claimed as deduction under section 80C of the Income Tax Act, thereby allowing you to reduce your tax liability.
4. Regular income fixed deposits
With regular income fixed deposits, the interest that your FD investment generates is periodically paid out to you in a monthly, quarterly, half-yearly, or annual fashion. You can then use these regular interest payouts that you receive as to substitute or supplement your income.
5. Cumulative fixed deposits
Unlike regular income fixed deposits, cumulative FDs don’t pay the interest out to you. Instead, it automatically reinvests it along with the principal investment, thereby enabling you to generate extra income via additional interest. Generally, this reinvestment (also referred to as compounding), happens annually till the end of the tenure.
6. Flexible fixed deposits
Also referred to as sweep-in fixed deposits, flexible FDs allow you to link your investment with your savings bank account. Once you’ve linked them, you can set a limit on your savings account and any balance over and above that limit automatically gets transferred to your fixed deposit.
7. Corporate fixed deposits
Companies are also permitted to offer fixed deposit investment schemes as a means to fund their operations. These types of FDs are what are known as corporate fixed deposits. The interest rates offered by these FDs generally tend to be higher. But they also possess higher levels of risk.
Now that you’re aware of the different types of fixed deposits, go ahead and start your wealth creation journey by investing in one. You can choose from the different FD investment options available on Finserv MARKETS and make a smart investment choice.