Everything has a price, and every price has its return. Fixed Deposits (FDs) are the embodiment of safety for Indian investors. They have existed since the time of our grandparents and parents and have been their preferred choice for savings. For a more in-depth look at ‘Why Your Parents Chose Fixed Deposits,’ click here.
Recently, the Indian fixed-income space has become very exciting due to the narrowing differential rate between corporate bonds and fixed deposits. Historically, the interest rates and returns on fixed deposits were much lower, but this gap is now starting to close. We believe this marks a fascinating time and a structural change in the banking sector. As a result, IndiaBonds has decided to launch its fixed deposits because, as they say, everything has a price.
In this write-up, allow me to explain the current scenario of FDs in India and the features of the newly launched Fixed Deposit by IndiaBonds.
A fixed deposit (FD) is a financial instrument regulated by the Reserve Bank of India (RBI), offered by banks, corporates and non-banking financial companies (NBFCs). It allows you to deposit a lump sum of money for a specific period at a predetermined interest rate. The interest rate on an FD can be floating or fixed for the entire tenure, ensuring a secure and predictable return on your investment.
The Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank of India, provides insurance coverage for bank deposits, including FDs. According to current norms, DICGC insures all bank deposits, including savings, fixed, current and recurring deposits, up to a maximum of ₹5 lakh per depositor per bank. However, this does not apply to NBFC FDs. This insurance limit includes both the principal and interest amount held by the depositor in the same bank.
Ideally, FDs should be best utilized as an emergency fund or to park money for a short period. This is because the post-tax returns and inflation can eventually affect your savings. Another important consideration is to avoid placing all your savings in an FD with one bank. Instead, split and diversify your savings across multiple banks considering the DICGC insurance coverage.
The process of investing in an FD is straightforward. You deposit a specific amount with a bank or financial institution for a chosen tenure, which can range from a few months to several years. In return, the institution pays you interest at regular intervals or upon maturity. At the end of the tenure, you receive your initial deposit along with the accrued interest or final interest payment, depending on the terms of the FD.
For example, suppose you invest ₹100,000 in an FD at an interest rate of 8% for a period of 1 year. By the end of the year, you would receive ₹108,000, which includes ₹8,000 as interest. This predictable and fixed return is one of the primary reasons why FDs are a popular choice among investors.
Additionally, it’s essential to be aware of the tax implications when investing in FDs. The TDS is deducted at the rate of 10% if you have provided your Permanent Account Number (PAN), or at 20% if you have not. This TDS is your tax liability deducted at source. The interest income of the deposit is added to your total income and taxed according to your applicable tax slab rate. Senior citizens may be eligible for tax deductions and higher interest rates. Furthermore, tax-saving FDs offer a tax deduction of up to ₹1.5 lakh under Section 80C; however, they have a lock-in period of 5 years.
Safety: FDs are among the safest investment options, as they are not subject to market fluctuations.
Fixed Returns: The interest rate is locked in, ensuring a fixed return.
Flexible Tenure: You can choose the tenure that suits your financial goals.
Tax Benefits: Tax savings FDs offer tax exemptions under Section 80C of the Income Tax Act.
Loan against FDs: In case of a liquidity crunch, most banks offer loans against FDs, allowing you to access funds without breaking your fixed deposits.
Lower Returns: Compared to other investment options like high-yield bonds or stocks, the returns on FDs are relatively lower.
Penalties on pre-mature withdrawal: Premature withdrawal can attract penalties and reduce the interest earned.
Inflation Impact: Over time, inflation can erode the purchasing power of the returns from an FD.
Despite these shortcomings, FDs are a comfort food for us Indians and are considered the ideal investment option for meeting short-term needs. However, if you seek better inflation-adjusted returns with an element of liquidity, bonds are the numero uno choice in the fixed-income space.
IndiaBonds is a FinTech platform dedicated to offering secure and user-friendly fixed-income investments. Over the years, we have successfully facilitated fixed-income investments, providing our users with a wide choice of 75-100 bonds, competitive pricing, and a seamless user interface. This track record has established our platform as a trusted destination for investors seeking fixed income and reliable investment opportunities.
Building on this success, IndiaBonds has expanded its offerings to include fixed deposits. As an aggregator for FDs, we provide investors with access to a reliable investment avenue by facilitating competitive interest rates and the convenience of online management. The fixed deposits themselves are provided by our partnering banks and financial institutions.
As rates remain attractive, fixed deposits from IndiaBonds represent an interesting proposition for investors. Our platform’s core strengths—extensive bond choices, competitive pricing, and an intuitive user interface—extend to our FD offerings, ensuring that investors benefit from the same high standards of service and convenience they have come to expect from IndiaBonds.
Attractive Interest Rates: IndiaBonds offers competitive interest rates on FDs, ensuring your money grows steadily. Currently, the interest rates on FDs in India range from 5% to 10% per annum, depending on the tenure and the bank or financial institution.
Flexible Tenure Options: Choose from a range of tenures to match your financial planning needs. Whether you need a short-term investment of 12 months or a long-term commitment of 5 years, IndiaBonds has you covered.
Easy Online Management: Open, manage and track your FDs conveniently through the IndiaBonds digital FD platform. The user-friendly interface makes it easy to monitor your investments and track returns.
Transparency: IndiaBonds is a SEBI-registered Online Bond Platform Provider (OBPP), ensuring compliance with stringent regulatory standards. The platform’s commitment to transparency gives investors peace of mind.
The banking sector has seen significant changes recently. Initially, deposit growth slowed as investors looked for better returns after the central bank cut rates due to pandemic. Later, rate hikes improved deposit growth. Meanwhile, the pandemic and the rise of FinTech have boosted financial inclusion.
However, this shift has also presented challenges for banks. In FY2023-24, year-on-year deposit growth was 10.78%, while credit growth was significantly higher at 18.39% (RBI). Consequently, the credit-to-deposit (CD) ratio rose substantially to 79.7% as of March 2024. This elevated CD ratio indicates that the growth of deposits in the banking sector is not keeping pace with the growth of credit.
If this imbalance continues to grow, it could pose a liquidity risk for banks in turn to the economy. A high CD ratio suggests that banks are lending out a larger portion of their deposits, which could strain their liquidity.
Traditionally, fixed income instruments were dormant due to a lack of awareness. However, now India has opportunities across the fixed income spectrum, including government bonds and corporate bonds. With FD rates currently very high, fixed deposits are becoming an attractive option for short-term investments. The current scenario makes FDs appealing because they provide safety, fixed returns and flexibility, making them a cornerstone of financial inclusion and an excellent choice for securing one’s future. The global markets are constantly changing, and we are witnessing a shift where the traditionally low FD rates are now high. This shift is part of the broader digitization movement where the “lazy capital” of FDs and savings bank accounts is moving towards investment capital. Hence, everything has a price or a return. Traditionally, this return has been provided by banks, but something interesting is happening right now.
A: Fixed Deposit by IndiaBonds act as an aggregator, meaning the safety of your investment is primarily associated with the issuer of the FD. All transactions are securely conducted on the issuer’s website, ensuring transparency and security. While IndiaBonds provides a platform to help you find and manage FDs, it’s important to evaluate the financial stability and credibility of the issuing bank or financial institution to ensure the safety of your investment.
A: Click her to know more: https://www.indiabonds.com/explore/fixed-deposits/
A: The best FDs to invest in are those offering competitive interest rates and flexible tenures. While IndiaBonds will soon provide a range of attractive FD options, you can look forward to our upcoming offerings that will cater to your investment needs with great features and benefits. Stay tuned!
A: Yes, but premature withdrawal may attract penalties and reduce the interest earned. In case of NBFC, 3 months lock-in is mandatory.
A: The minimum amount to invest in FDs at IndiaBonds starts at ₹5,000.
Disclaimer: Investments in debt securities/ municipal debt securities/ securitised debt instruments are subject to risks including delay and/ or default in payment. Read all the offer related documents carefully.
