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Fixed Income
Fixed Deposits

Fixed Deposits

Fixed deposits are perhaps one of the most common investment instrument used by common men. The biggest advantage provided by fixed deposits is that it provides option to grow your wealth at a low level of risk. As the name entails, Fixed Deposits are deposits of money for a fixed tenure. As a reward to part with your money, the deposit acceptor provides an interest. The interest rate provided on a deposit varies with the tenure of a deposit and the credit worthiness of the deposit acceptor. Hence it would be a common experience to find that the interest rate offered by Banks for fixed deposit would be less than that interest rate offered by Companies for the same deposit tenure as the credit worthiness of banks is better than that of the Companies.

In the current situation fixed deposits are offered by the following:
  • Retail Banks;

  • Non-Banking Finance Companies (NBFCs);

  • Housing Finance Companies;

  • Manufacturing Companies; and

  • Government Companies.

Key Features of Fixed Deposits

  • The interest rates offered by Fixed Deposits vary based upon the tenure of the deposit. Generally the deposit rates are highest for deposits varying between 1-3 years. Deposit tenure more than 5 years generally have a lesser interest rate payout.

  • Owing to credit worthiness, the fixed deposits from Corporates offer higher returns than banks. This at times turns into attractive investment options.

  • Though the risk profile is low for Fixed Deposits in comparison with Equity investments, but they are subject to the credit risk of the deposit taking company. Consequently a good investment strategy is to spread the deposits over a large number of Companies to diversify your portfolio.

  • An investor is offered with many options for interest payout such as monthly, quarterly, half yearly or yearly payouts. Investors can also opt for cumulative payout where the interest amount is accumulated and is paid in lump sum on maturity of the deposit.

  • Option to encash deposits is generally available to an investor. However this is subject to a payment of penalty interest rate.
Interest paid on Fixed Deposits is chargeable under the head 'Income from other sources'.
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