Compare - Fixed Deposit

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Indian households prefer fixed deposits for a 3-year period where interest rates range from 9.50% p.a.  Banks – public, private, foreign and cooperative operates Fixed Deposit schemes. In a fixed deposit, a certain sum is deposited for a definite period. You can either opt for periodical (monthly/quarterly/half yearly or annually) returns or simply opt to get the amount with accumulated interest at the end of the prescribed period.  Returns are assured but the interest income is subjected to tax making it less attractive. The effective rate of returns post-tax would be around 8% p.a. depending on the duration as well as the tax bracket of the depositor. However, there is no upper limit on the amount that can be invested in Fixed Deposits. Professionals and some savvy depositors who are willing to take calculated risk would opt for Public Deposits, which operate on similar lines except that they are offered by corporates in the private sector. These unsecured deposits currently offer a fixed rate of 11% p.a. for periods between 1-3 years. Furthermore, the interest earned is subjected to tax making them less attractive. The effective rate of interest post-tax would be around 9% p.a.

Fixed/Public Deposits require heavy investment in one stroke. So before these deposits are made, depositors should accumulate all their savings first. This is quite de-motivating for the majority as nobody saves for the sake of saving. Savings have a specific financial purpose to meet in future -purchase of assets/finance education or to make down payment for a vehicle loan or a housing loan. However, if individuals or professionals or small businessmen have surplus cash for the short-term, they can avail this cash flow to park in a running Group Funds where some members have opted out. This is a lucrative opportunity as the waiting time is shorter and the depositor also can participate in an existing Group with a decent discount. Moreover, there is greater flexibility in parking funds in an existing Group Funds as vacant Groups would be available across different fund values and maturities giving ample returns. The dividends earned on such funds can be reinvested to participate in other funds thereby enhancing the returns on investment.

It is equally safer to save with a registered chit fund company like GroupFund as it makes a Security deposit equal to 100% of chit value in a schedule bank as FDR, which in turn is pledged in favour of the Registrar of Chits. Therefore, a member in a registered chit fund company is very much secured than a member in a non-registered company. As regards liquidity of investment, a member can participate in the auction from the second month and avail the facility of early withdrawal provided he or she has made the payments up-to-date. If monthly contributions are paid by cheque, it should be realized before the auction date.

 

 

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