In India, Fixed Deposits are important as well as popular among investors. These are considered safe and can offer good interest rates. A Fixed Deposit is considered good for risk-averse investors and offers various interest rates depending on the tenure of the investment.
Fixed Deposit is a financial instrument wherein an investor can invest a lump sum amount with a bank at an agreed rate of interest for a specified period of time(say from 7 days to 180 days). The amount can be invested for a period of 10 years. At the end of the tenure, the investor will receive the amount that was invested along with the interest.
It is a type of Fixed Deposit which offers a tax deduction under section 80C of the Income Tax Act, 1961. The quantum of the deduction is dependent on the investment that is made and is limited up to a maximum of Rs. 1,50,000.
There is a minimum lock-in of 5 years for the investment made in Tax-Saving Fixed Deposit and the interest earned is taxable as per the slab rate applicable.
Once an investor makes a fixed deposit with a bank, the amount gets locked-in for the specified period of time. An investor can earn interest on the invested amount on a cumulative basis.
There are multiple options for investment in a fixed deposit as these are available in various tenure.
Thus an investor can have one fixed deposit say for 90 days and another for 180 days. This helps in earning more interest and offers liquidity if required.
Below are a few banks that offer tax-saving fixed deposit and the interest rate offered by them:
|Bank||FD Interest Rate|
|Bank of Baroda||6.25%|
|Lakshmi Vilas Bank||7.25%|
|Punjab National Bank||6.50%|
|State Bank of India||6.25%|
Above stable as on 31 Jan 2020
An investor can open a tax-saving fixed deposit in the existing bank where he or she has an account, as well. An investor can talk to the relationship manager or visit the respective bank’s website and initiate the process.
An investor can invest in fixed deposits offered by a bank in which he does not hold an account. Here, the investor will have to complete your Know-your-customer(KYC) requirements.
Below are a few documents that are required to complete your KYC :
Once you complete the KYC requirements, you can easily start a tax-saving fixed deposit with that bank.
ELSS and tax-saving fixed deposits are both good investment options but differ in terms of various aspects. Below is a table reflecting the differences between the same :
|Meaning||A type of deposit made with a bank wherein investor puts a specified sum of money for a fixed tenure.||A category of mutual fund in which funds are invested in the equity market.|
|Returns||Fixed return as per the rates offered by the bank||Dependent on the market conditions and returns vary as per the performance of the market.|
|Liquidity||Cannot be liquidated before the specified period of 5 years.||It cannot be liquidated before the specified period of 3 years.|
|Lock-in period||3 years||5 years|
Taxation on mutual funds is a complex topic. Taxes paid on your mutual fund investments vastly depend on factors such as what kind of funds you have invested in, the duration of your investment, which income tax slab you belong to and so on.