How Fixed Deposit Works – Benefits and Features

Traditionally the most favored investment avenue, in India, bank deposits or fixed deposits, continues to hold forth even today. Unlike , other popular investment avenues, like mutual funds , real estate or equity shares, fixed deposits does not offer equitable ROI previlages , but it does render , the principal purpose of investment , i.e, the sound and secure preservation of your hard earned capital. Being one of the safest investment platforms, it provides a perfect mix of safe and risk investment, with fixed returns. The amount of return or interest rate, depending upon the level of investment made along with the tenure of the deposit.

Thus by default, fixed deposits are structured to, provide a number of benefits to its  holders. Some selective amongst them are as mentioned:

Safest Investment Mode:

Fixed Deposits, from any reputed nationalized banks, can be seamlessly considered, as one of the safest mode of preservation and investment of your hard earned capital. All banking financial intermediaries are regulated by the, RBI, the apex banking regulator in India , and thus provides , complete  risk free security  and support  against your investment.

Un-interrupted Stable Income:

Fixed deposits can be readily considered as prominent source of, un-interrupted stable income. Through, investments done of your fixed deposit account, you receive regular income through the interest payments that are made at the end of every month or quarter.  This acting as an additional source of regular over head income.

The Tax Benefit:

Investment in fixed deposits up to a maximum of Rs. 1 lakh for 5 years is eligible for tax deductions under Section 80 C of income tax act. Thus , fixed deposits are a tax saving invest plan , yielding high returns on your investment.

Liquidity:

Bank Deposits are investment tools bearing good liquidity. The posses the provision to be closed at any time , according to convenience , and the principal amount , retrieved back  within few hours , to a couple of days  depending on the bank your are associated with.

Co-latteral Security for Loan Approval:

Your fixed deposit, can also act as a  collateral security , aiding the approval your loan application, at a   comparatively lessened rate of interest. This is , due to the fact of banks and other non banking financial institutions  showing certitude in people having a strong investment base when considering for a loan or any such monetary issues.

In Conclusion:

Although, bank deposits primarily serve as preserve capital. However,  banks now-a-days have added a lot of additional benefits to the traditionally benign service. The only caution being not utilizing fixed deposit as a long term investment avenue. The reason is that the real return is very less when adjusted for inflation. The tax treatment of the interest also eats out into the returns.