Investing in bank FD was the best and the most obvious choice for people around a few decades ago. But today, owing to the ever-increasing number of banks and NBFCs competing with each other, bank FDs no longer remain a fruitful option. With the banking institutions still offering somewhere between 6% p.a to 7.25% p.a; corporate Fixed Deposit seem like a more conducive alternative.
Having said that, with an increased rate of interest increases the risk of the principal amount and hence, gauging the credibility becomes inevitably essential. That said, a much more important question is, how to gauge the credibility of a lender or of a particular investment scheme? The answer is ICRA ratings.
ICRA is an Indian independent and professional investment information and credit rating agency. Now, being an early entrant, ICRA is one of the most credible and trusted credit rating agency in India, and its prime responsibility is to analyze and evaluate the credit risks associated with the rated debt obligations/issues.
Summing up, ICRA rates the short-term and long-term investment plans offered by various financial institutions in India. ICRA’s rating can give you an idea of how safe your money is posted investing in a particular scheme.
ICRA’s Rating for Fixed Deposit
MAAA indicates highest credit quality of the investment. Fixed Deposits from reputed financial institutions like Bajaj Finance comes under MAAA rating of ICRA. Such investment carries the lowest possible risk of default.
The amount of money invested along with the financial goals varies from one person to the other. For a college student, the priority will be to save for her/his future studies. If it is a parent, the priority would be to save enough for their children’s education and marriage, while for senior citizens it will probably be for fulfilling their dreams of visiting new places.
The kind of investments made will also vary according to the age group. For instance, if it is someone young, he/she can take risks and opt for investments such as SIPs, mutual funds, and shares. While if it is a senior citizen or someone who has children, they would opt for safer options even if the returns are lower such as fixed deposits.
The true intent of all these investments remains the same - to build a sufficient corpus which would help not just in long-term financial goals but also for covering day to day expenses.
Apart from the age, country and demographics also play a crucial role in deciding the investment goals. The differences arise due to the varying attitudes and approaches when it comes to saving money.
In India for instance, of the retired individuals only 22% have a diversified investment plan. The number increases to 50% in Brazil and 74% in Australia.
There are three age groups who invest for the future which are -
Baby Boomers (born in 1945 – 1964),
Generation X (born in 1965 – 1980), and
Millennials (born in 1980 – 2000).
Each of these age group has it own priorities when it comes to investment. For instance more than 65% of the Baby Boomers invest for their retirement more than anything else. For about 40% of the Millennials, retirement is just a priority. The difference between Baby Boomers and Generation X is just 5% when it comes to saving for retirement.
Yet the one thing which is common across countries and age groups is the kind of investment which people prefer - safe investments which offer the highest returns. If you are also searching for one, then the best option is to go for fixed deposits. This is because it is not linked to the market and offers guaranteed returns of 8.75%. If you are a senior citizen, you get an additional 0.35%. Most lenders including NBFCs also offer an FD calculator using which you can calculate the amount which you stand to receive at the end of the lock-in period.
Also, Read Related Article: How To Investment Goals Vary by Country and Age
Retirement is a time to relax and enjoy and to make the most of your free time. However, it can be bad if you have to remain financially dependent on someone or the job you just got retired from. To save you from such hassles you can start investing early in investment options made for retirees.
Public Provident Fund or PPF
Initiated by the government the scheme is designed to help people planning their retirement save on a regular basis.the minimum investment can be Rs. 500 which is deposited in 12 instalments. While, the maximum investment amount is Rs. 1.5 lakhs with tax exemption benefits under Section 80C of the Income Tax Act. besides, the interest earned at the time of maturity of the deposit remain tax-free.
The PPF comes with a lock-in period of 15 years an it can be closed in case of untimely death of the account holder. However, in case of financial urgency you can make one withdrawal per annum or withdraw up to 50% of the invested amount by the 5th year of the investment. Additionally, you can apply for loan before the 7th year of investment, up to 25% of the investment.
After the completion of the lock-in period you can invest the Provident Fund amount in fixed deposit of any leading NBFC. the reason being this kind of investment will offer higher return due to interest rate starting from - 8.75% onward, flexible lock-in period from 12 to 60 months, irrespective of the market fluctuations.
You can easily book an FD online with minimum paperwork for yourself or for your family members. The process does not take long and lets you book the FD with just Rs. 25,000. You may use the FD calculator available online to evaluate returns on your investment and to make the most of your investment.
Also, Read Related Article: Why you should consider investing in a PPF for your retirement?
Saving has become an integral part of our finances especially in times when inflation is slowly eating up our expenses. To start saving early is a smart way to build wealth and to grow your corpus. Here some crucial tips which first-time investors must keep in mind before they start to invest -
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While, saving it is very important to give due consideration to the source(s) of income. As they may change with time or not change at all. This will directly affect your lifestyle choices and hence you must be change your saving strategy accordingly. To take informed decisions you can take the help of a financial advisor or someone well aware of the saving options.
Also, Read Related Post: Smart Investment Tips for Beginners
NBFCs offer multiple advantages in comparison to a bank FD, especially in the rate of interest. Fixed deposits are offered in two distinct versions, cumulative and non-cumulative. Each of them is different in how they pay out their FD interest rates.
Cumulative fixed deposits compound the interest each year (or every quarter) and return it to the investor after maturity along with the principal. It is a great FD scheme for people who are looking forward to investing their wealth for a much greater return.
These schemes are popularly known as money multiplier schemes because of their longer lock-on period, and cumulative addition of interest.
Cumulative fixed deposits are ideal for young professionals who do not want access to a monthly fund right away. For instance, if you choose a cumulative scheme in an NBFC at 10% FD interest rates, you will not get anything every month, or year.
However, after the tenure ends, that firm will pay you your principal amount with the accumulated interest. Suppose you have an FD of Rs. 1 Lakh, at the end of the first year, you will get back Rs. 1.10 lakhs.
In most schemes, cumulative fixed deposits are compounded quarterly. This interest is reinvested with the principal amount over the period of maturity. Generally, this period ranges anywhere from 6 months to 10 years. Companies like Bajaj Finserv offers a flexible tenor period of 12 to 60 months, and offer a market leading 8.75% FD interest rates. You can choose the best cumulative fixed deposit scheme with the help of an FD calculator, calculate the term period, principal amount, and choose the best return for your policies.
It is the responsibility of every parent to offer a safe childhood and gift an even more secure future to their children. Speaking in terms of finances, there are various investment schemes where you can put in your money towards your child’s future. However, you must choose the one which offers assured returns and which aptly matches your financial requirements. Let’s know more about them here -
During your professional work you may set aside a fixed amount every month towards your child's future in provident fund account. This can be withdrawn at the time of maturity to cater to various financial needs.
If you are are a risk-taker then then you can deposit in equity mutual funds. Though, they depend on market fluctuations they will still help you earn appreciable interest income by diversifying your investment in various funds.
This is a low-risk, low-maintenance savings option offered by leading institutions such as NBFCs. They provide higher rate of interest on FD starting from 8.75% onward which helps to accumulate wealth and secure it for your child’s future needs. Besides, interest up to Rs. 10,000 is tax free. To save tax on income of more than this amount you can submit Form 15G and Form 15H to the lender. Moreover, there are two types of withdrawals available - cumulative (where amount is collected at maturity) and non-cumulative (where amount is collected at monthly, quarterly, half yearly and annual basis).
Buying a property is another lucrative investment option. As this is a long-term investment you can choose to gift them as a heritage thus, securing their future.
Saving schemes today let you prepare well in advance for the future. They let you divert finances to where they will be required the most. But before you put your money into them you must know about them completely to make proper investment decision.
Fixed deposit is one such scheme which offers you low-risk, low-maintenance finance option to fix a lump sum and earn appreciable income on it. Let’s know more about it here -
Major NBFCs offer fixed deposit scheme with higher interest rate starting from 8.50% onward. It is a lucrative option as you can fix the amount and earn appreciable income. This income is tax free too up to an amount of Rs. 10,000. To save tax on income of more than Rs. 10,000 you can submit Form 15G and Form 15H to your lender.
Moreover, senior citizens receive 0.35% higher interest on the base rate. They can book the deposit online with minimum paperwork in their name or for their family. Upon renewal, depositors receive 0.25% higher rate on the base rate and thus can earn more on their fixed amount. Besides, you receive flexible tenure of 12 to 60 months to fix the amount and earn income.
Also Read: Best Investment for Senior Citizens
There are two types of withdrawals available - cumulative (to withdraw amount at the end of the maturity period) and non-cumulative (to withdraw at quarterly, monthly, half yearly and annual basis).
Rated high on safety and stability with ICRA’s MAAA (stable) rating and CRISIL’s FAAA/ stable rating so the deposit is never at risk. It helps to accumulate wealth and gradually grow your corpus with time.
You may also Read about: What is the Minimum Credit Score you Need to Avail a Loan
Watch the video below to know what are the Benefits of Fixed Deposits for Senior Citizen:
Retirement is a stage where you will no longer get your regular income. So, you must start organizing your finances early in life. You must choose the proper way to target a large retirement corpus as well as have options through which you can generate income even during retirement. By the time you retire, you must have enough money as savings. For which you can use different investment options such as Senior Citizen FDs, Senior Citizen Saving Scheme (SCSS), and Provident Fund (PF). But, investing in any mode will not help until and unless you strategize the sources of steady income while planning your finances. Here are a few useful strategies that will help you to gain a lot.
Consider the External Factors
You must consider the external factors, while investing in schemes where you will get the returns in the long-term. Your retirement plan may facilitate regular and guaranteed income during your retirement. So, it is essential to check the external factors such as market volatility, inflation, as well as unforeseeable emergencies, that would affect the investment returns and interest rates. This strategy will be future-proof.
Include Guaranteed Income Options
You should also ensure guaranteed income within fixed intervals. Fixed Deposits could be an excellent investment option for retirees so that they can earn higher and regular returns without facing any risk. You can even use the FD calculator before you decide on the type of FD you want to choose, to make the most of your fixed deposits.
Retirement is a time to sit back, relax or do something for which you never had the time before. A lot of this depends on your financial independence. To help you plan for your retirement there are several investment options for senior citizens that you may invest in today. Which one you opt for will depend on your personal preference. However, to help you make an informed decision here are some reliable saving schemes for you to consider -
This is a low-risk, low maintenance saving option which helps you save for immediate and future financial needs. Major NBFCs offer lucrative high interest rates on the deposit to help you accumulate wealth and grow corpus overtime. Interest rates start from 8.50% onward with flexible repayment tenure of 12 to 60 months. Senior citizens get additional interest rate of 0.35% on the base rate and they can easily book the deposit online with minimum paperwork.
Interestingly, the deposit offers two types of withdrawals - cumulative and non cumulative. In the former you can withdraw amount from the deposit upon maturity while in the latter you can withdraw at quarterly, monthly, half yearly and annual basis.
Post Office Monthly Income Scheme
Senior citizens can book a post office saving account with cash only. The depositor can choose a nominee for the account. The account can be transferred from one post office to another.
Account can be booked for a minor too and it can be converted to their name once they attain majority. The depositor has to put in the money for a minimum period of 5 years during which they cannot withdraw this amount. While, they can partially withdraw after a period of 7 years and fully withdraw it after 15 years.
Additional Read: Post Office Monthly Income Scheme Vs Fixed Deposit: Which Is Better for Senior Citizen?
Fixed deposit has been the most preferred investment avenues of Indians. Studies have shown that 95% of Indians preferring to park their money in fixed deposits. However, in mutual funds you can gain more interest.
So, before deciding the best saving plan India, you need to study the benefits of both the investment plans.
Benefits of Mutual Fund:
1. Small Amount Investment
If you do not have a large sum of money or you do not want to take the risk, you can start investing in mutual funds with a small amount. You can set up a systematic investment plan (SIP) with a small amount of Rs.500 per month only. When your salary or cash inflows will increase, you can increase this amount.
2. Potential Inflation-adjusted Returns
Mutual fund is one of the best long term investment plans, that generate inflation-adjusted returns. Generally, with inflation the value of wealth gets eroded with time. Mutual funds mainly equity-oriented funds, are better than the other asset classes as they have the best potential to generate inflation-adjusted returns in the long run.
3. Flexibility to Use
You can use the mutual fund amount anytime you want to. In case of emergency, ultra-short duration funds are ideal for meeting short-term goals such as a vacation, home renovation, etc., or long term goals such as higher education, etc. you can use mutual fund.
To know the benefits of a fixed deposit, read:
Aman is working in the domain of Investment management in one of the top universities. He has published research papers and case studies in Investment and Fixed Deposit marketplace. He is an avid blogger in the domain of Investment management. you can also find him on social networking platforms.