June 20, 2024

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Know about fixed deposits and their use

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Fixed Deposits

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With fixed deposits, you can invest your lump sum and earn interest over a predetermined period. The fixed deposit’s interest rate is determined by the principal invested and the length of the investment. You will therefore receive the principal sum as well as compound interest at maturity. This is only accurate, though, if you choose a cumulative Fixed Deposit. Additionally, you have the choice of non-cumulative FDs, which pay interest on a monthly or quarterly basis.

Fixed deposits are often preferred by investors because they are simple and safe. After depositing your lump cash, you continue to earn a fixed interest rate. Changes in interest rates or market swings have no impact on the returns on fixed deposits. There is no obvious risk of losing your principal and you are guaranteed returns on your deposit. You have the option of receiving the interest either regularly or at maturity. However, unless you don’t mind incurring a penalty for early withdrawal, you are not allowed to take your deposit before it matures.

Characteristics of fixed deposits

Now that you are aware of what FDsare, let’s examine its characteristics:

  • Interest Rates

The best rate of interest depends on the principal amount and tenure you choose. Long-term FDs often have greater interest rates than short-term FDs do.

  • FDs with flexible tenure and renewal options 

FDs with flexible tenure and renewal options can be employed for terms of one week to ten years. When opening the FD, you can select the chosen term. When the FD matures, you can renew it just as easily, but be sure to check the interest rates because they might change.

  • Safe Investing

Most market-driven investments are dynamic over time. Fixed Deposits, on the other hand, are more dependable and safer. This is due to the fixed returns produced by FDs. They are unaffected by market turbulence and are constant, at least during the investment period.

How Does the Lock-in Period Affect FDs?

The lock-in term for an FD account coincides with the deposit tenure or maturity period. This merely implies that you are unable to withdraw the money you deposited at that time. You are not allowed to withdraw money from tax-saving FD programs within five years of the account’s establishment. Premature withdrawal is still permitted in the case of other FD plans, subject to specific penalty conditions laid out at account opening. The conditions could vary from bank to bank. 

Systematic Investment Plan Calculator (SIP Calculator)

Prospective investors may believe that mutual funds and SIPs are interchangeable. SIPs are only one way to invest in mutual funds; the other is to make a lump sum purchase. A sip calculator is a tool that aids in calculating the returns available when investing money in such gadgets. The systematic investment plan, or SIP, is a method for periodically investing a certain amount of money in mutual funds. You can often invest weekly, quarterly, or monthly using SIPs. A SIP calculator is a straightforward tool that enables people to estimate the returns on their SIP-based mutual fund investments.

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