COMMERCE PROJECT 1

What is Fixed Deposit

Bank fixed deposits (FDs) has always been a popular investment alternative especially among
investors who are conservative and need to preserve their capital. In banking parlance, bank
FDs are called term deposits as they are for a specific term ranging from 7 days to up to as long
as 10 years.

In addition to the safety of the capital and a fixed rate of interest, FDs also provide liquidity to
the investor as they can be accessed at the time of need. The FDs may be continued till its
maturity or can even be redeemed or the surrendered before the end of its original tenure.

Let us see how to close an FD (whether opened online or offline by visiting a bank branch), both
on maturity and premature closure. The actual requirement may vary across banks, hence
know them from the bank before proceeding with the closure.
Before we tell you how to close an FD, it is important to note that closing a five-year tax-saving
FD before the end of the tenure is not allowed by any bank.

How does Fixed Deposit Works

A fixed deposit is a guaranteed return investment option offered by banks, Non-Banking
Financial Companies and India Post Office. It allows you to make a one-time lump-sum
investment for a pre-determined period of time and earn interest at a higher rate than a bank
or post office savings account.:

The time period for an FD can range from 7 days to 10 years. Once you make the deposit with
your bank, it starts earning an interest depending on the duration of the deposit.The main rule
of a Fixed Deposit is that the money can be withdrawn before maturity.However, on opting
for premature withdrawal of FD, you will be charged a penalty..

Fixed deposit offers you flexibility in choosing its time period. In other words, it can be opened
for as long as you have idle funds

Some banks offer a premature withdrawal facility, but this leads toa lower rate of interest.

On the date of maturity, the bank credits the principal amount and interest to the account
holder's bank account.

You must know the type of investment and understand its offerings before investing your
money. Hence, it is important to understand what is a fixed deposit and also calculate the
amount to be invested and the interest you will earn using an FD calculator to help you make a
wise decision.

Types of Fixed Deposit

1. Standard fixed deposit
A standard fixed deposit requires a person to invest their money for a fixed period of time at a
predetermined interest rate. The time period of a standard fixed deposit varies between 7 days
to 10 years. This is the most popular FD option chosen by stakeholders.

2. Special Fixed Deposit

Special Fixed Deposits are ''special'’ because they are usually offered for a special time period. A
special time period can be between 290 days and 390 days. Special FDs offer a higher interest
rate and are a popular choice among various stakeholders.

3. Tax saving Fixed Deposit

Unlike the Standard Fixed deposits, Tax saving fixed deposits cannot be booked for less than a
period of 5 years. The amount invested is exempt from tax under section 80C of Income Tax
1961, but the interest generated from the FD is liable to be taxed.

4. Floating Fixed Deposit

In a floating fixed deposit, the rate changes quarterly or yearly and people can avail the benefits
of a changing interest rate.

The change in the rate of interest is determined by the Reserve Bank of India guidelines. For a
really long time, Fixed deposits have been an attractive mode of investment for Indians over
the years because of the security of the principal amount and how the money grows beside an
assured rate of interest. It also gives people a regular source of income through interest, which
they can either claim or reinvest. With banks offering better interest rates to their investors,
fixed deposits' popularity will definitely increase with time.
Features of Fixed Deposit
In the above section, we have discussed the different types of fixed deposit
meanings. Now you should also be aware of the key features of a fixed
deposit to effectively understand what is a fixed deposit and if it is suitable for
you:

 The amount can be deposited only once. If you wish to make additional
deposits, you should start a new Fixed deposit.
 The rate of interest is higher than the savings account.
 The duration ranges anywhere between 7 days and 10 y
 Fixed deposits can be renewed without any hassle.
 Withdrawals cannot be made before the maturity period. In case of an
emergency withdrawal, a penalty must be paid by the account holder.
 Benefits of Fixed Deposit
Assured Returns
One of the main advantages of investing in a fixed deposit account is that it
assures returns. This means zero risks in comparison to other forms of
investments like mutual funds. On maturity of the FD, you will receive a fixed
interest rate on the money you invested.
2. Easy to open
You can open a Fixed Deposit account in a matter of a few minutes. You can
either apply for it online or walk into your nearest bank branch and ask an
executive to open it.
3. Higher rate of interest
Fixed deposits enable people to earn a higher rate of interest in comparison to
their savings account or any other form of term deposit
4. Flexible Tenure
You can choose to open a fixed deposit account for a period of 7 days to 10
years.
5. Multiple FD accounts
You can hold more than one FD account at a given point in time. Whenever
you wish to make an additional investment, you can always open a new FD
account.
6. Additional Tax Benefit4
You can claim for a tax exemption under Section 80C of the Income Tax Act of
India 1961 for a sum of up to INR 1,50,000.
How to Open an FD Account
Now that we know 'what is a fixed deposit?', let us see how you can open one.
The Fixed Deposit account can be opened both online and offline.

Online Process

As an investor, you can easily open an FD account online and avail of benefits
such as easy payment, closure, and renewal. The process may vary from
bank to bank. Here is the general procedure that you need to follow to open
an FD account online: -
 Visit the official website of the bank of NBFC, where you want to open a
fixed deposit account.
 Create an ID or log in to your existing ID.
 Select the FD account option.
 Fill in the necessary details such as principal amount, nominee, tenure,
etc.
 Confirm your detail and make your payment.
 Make sure to download the receipt for future reference.

Offline Process
You can open an FD account in any bank you want, even if you are their
existing account holder. Whether you have an existing account with the bank
or not, the process for opening a FD account remains the same. Here are the
steps: -

With an existing account: Fill out the FD application form and submit it to
your branch.

Without an existing account: Along with FD application form, you will be

required to provide identity proof, address proof, and some other documents
to complete your KYC.
Documents required for opening a Fixed Deposit Account

IDENTITY AND ADDRESS PROOF

Any one of the following documents would serve as proof of identity and address (OVD)
of the Customer:
 Passport
 Driving Licence issued by the Regional Transport Authority
 Voter ID
 Job card issued by NREGA, signed by a State Government Officer
 Letter from the National Population Register
 Proof of possession of a complete Aadhaar number.

PAN Card issued in India is no longer considered a valid proof of identity.

Here is a list of the documents that are required for each of these parties:

Existing Customers

 If you are opening a fixed deposit account with a bank where you already
have an existing account, you may not need to bring all of the necessary
documents with you because the bank will already have them on file.
However, you will still need to bring a copy of your KYC (Know Your
Customer) documents and recent passport-sized photographs.

For New Customers

 Recent Passport-sized photographs

 Documents for KYC (Know Your Customer) verification, such as a PAN
card, AADHAR card, driving license, voter ID card, or passport

For Public/Private Limited Company

 Company PAN card

 Registration or incorporation certificates
  Bank account statement/latest telephone bill/latest electricity bill
 KYC of authorised signatories
 Board resolution for FD opening
 Passport size photographs

For Hindu Undivided Family (HUF)

 HUF deed and declaration

 PAN card
 KYC documents
 Passport size photographs

For Partnership firm

 PAN card
 KYC of all the authorised signatories
 Registration certificate
 Partnership deed
 Passport size photographs

For Registered Societies

 Board resolution for FD account opening

 PAN card
 KYC of all the authorised signatories
 Bank account statement/latest telephone bill/latest electricity bill
 Certificate of registration/incorporation
 Articles & memorandum of association
 Passport size photographs

For Statutory Board /Local Authority

 PAN card
 Bank account statement/latest telephone bill/latest electricity bill
 Certificate of registration/incorporation
 KYC of all the authorised signatories
  Copy of Permission given by government authority/ministry
 Passport size photographs

For Trusts

 Copy of trust deed

 Registration certificate
 Board resolution for FD account opening
 Passport size photographs
Taxation of Fixed Deposit

The interest you earn on your fixed deposit is taxable. First, it is added to your
income and then taxed at the slab rates that apply to your income. You must
declare it on your tax return under the category 'Income from other sources'.
It is important to remember that TDS is withdrawn only when the FD interest
rate is credited and not when the FD matures. Therefore, if you have a 3 year
FD, the tax on the FD will be deducted at the end of every year.
Banks deduct tax at source (TDS) when crediting interest to your account if
the amount of interest exceeds ₹40,000. But the limit for senior citizens
is ₹50,000.
How is Interest of Fixed Deposit Calculated

What is a Fixed Deposit? – It is a reliable investment to preserve and grow

your savings. The rate of interest on your fixed deposit depends on the tenure
and the frequency of payouts.
The interest of FD can be calculated using the following formula: -
A = P(1 + r/n)^n*t
Where,
A: Maturity amount
P: Principal amount
r: rate of interest
n: compound interest frequency
t: Number of years
The interest payout of fixed deposit's maturity depends on the rate prorated by
the bank and the frequency of payouts. The interest of principal amount is
calculated either as simple interest or compound interest. The amount
payable at the end of maturity Is higher in the case of compound interest as
interest is calculated on the principal after every compounded.
Who is Eligible
The following entities are eligible to open a Fixed Deposit account in India: -

 Indian residents
 NRI
 Minors
 Senior Citizens
 Partnership Firms
 Companies
 Societies and Clubs
 Sole proprietorship
 Individuals or Joint investors

How can Fixed Deposits Improve Your Financial Portfolio

1· Link your savings account with a bank FD
You can automatically transfer the money into a fixed deposit from your Savings
Bank account when the balance in it crosses a certain amount, say Rs 25,000.
Depending on your bank account, you can link them to your savings account
enabling automatic transfers in multiples of Rs 5,000 to a fixed deposit.

On the other hand, you can also choose to do a recurring deposit from your
Savings Account. This would instill in your financial discipline and ensure that you
have regular savings. Make sure your FD tenure matches the time-frame by which
you plan to achieve your desired financial goal. Besides, choose between the
cumulative plan and monthly or quarterly interest payout plans considering your
liquidity and cash-flow requirements.

2· Flexible with your financial goals

For instance, if you wish to opt for a short-term goal which is just for a few
months, then you should select a short-term fixed deposit. On the other hand, if
you wish to opt for a long-term goal, choose a long-term-based Fixed Deposit. In
both cases, you must choose the 'reinvestment of 'interest' plan so that you
create more wealth for yourself.

3· Payout Flexibility
If you wish to draw a regular source of income from the fixed deposit, choosing
monthly or quarterly interest payouts directly to your bank account will help you
to handle your cash-flow needs.
Try to save your money through a Fixed Deposit when the interest rates are good
so that it can yield a better rate of return and probably counter inflation.

How to Manage Your Fixed Deposit on Internet Banking

Managing your Fixed Deposit is very easy, quick and convenient on Internet
Banking. Take a look at this video to understand:
1. View your FD details
2. Renew your FD for the same tenure
3. Download your FD Advice
4. View your Deposit Statement
5. Update your FD nominee, when your FD Mode of operation case is Single
6. In case of any emergency how you can avail of Overdraft against your FD
7. How can you avail Credit card against your FD
8. Submit Form 15G/H to save TDS
9. Download Interest Certificate for your tax filing
What Is Interest Rate
Interest rate is the amount charged over and above the principal amount by
the lender from the borrower. In terms of the receiver, a person who deposits
money to any bank or financial institution also earns additional income
considering the time value of money, termed as interest received by the
depositor.

Interest rates on borrowings and deposits may defer considering the purpose
and to whom the amount is given.

Interest Rate on Deposits

People deposit excess money in banks and financial institutions to earn
additional income as interest depending on the time value of money and the
compounding effect.
Interest can be earned as simple interest and compound interest.

Types of Interest
1) Simple Interest:
It is a simpler form of computing interest on the principal amount as the term
of the loan is considered for that year only, and interest is charged or provided
every year on the same original sum deposited or lent, as applicable.

It is easier to calculate, and a layman can also understand its calculation.

For example, if the original principal amount is $100 and the interest rate is
10% per annum for one year, then the interest will be computed as under-

= $ 100 * 10% * 1

= $ 10

I.e. Principal Amount * Interest Rate * Time (Duration of loan/deposit)

So, as per the above calculation, $110 will be paid or received by the
borrower or depositor at the end of one year.

2) Compound Interest:
Compounding, as defined in the dictionary, refers to “reckoning interest on
previously accumulated interest”. A layman might not well receive it as it might
sound a bit complicated compared to simple interest computation.

Let’s have a look at the formula by which compound interest is computed-

= Principal Amount * [(1 + Interest Rate) n – 1]

Where n= number of compounding periods

It might still not be clear to many. But by closely analyzing the formula and the
definition of compounding, one can ascertain the meaning.

Interest rates are useful when compounded as it considers the time value of
money as interest is also provided or charged on the amount already received
as well as on the principal amount, so there is no loss of interest on the
deposited sum.

Interest on interest is the main benefit of compounding and can be beneficial

for the depositors as interest rates on deposits are generally lower than
interest on borrowings.

Certain lenders also tend to charge interest on a compounding basis

depending on their policy or the borrower's credit rating.

Debt vs Equity
Equity is the owned funds of the company, and the company is not liable to its
owners for such funds. Debt is the borrowed funds of the company on which
the company pays interest mandatorily on the pre-defined interest rates.

Companies should not rely a lot on borrowed funds as it puts significant doubt
on the company's ownership. Debt-equity ratio ranging between 0.5-1.5 is
considered ideal in the industry, but it can change depending on other factors.

What is the main difference between Simple and Compound Interest

Simple interest differs from compound interest mainly in terms of charging
interest on the accumulated funds that are done in compounding and are
ignored in simple interest calculation.
Fixed Deposits Interest Rates 2023
Fixed deposit is a safe investment option that guarantees consistent interest
rates, special interest rates for senior citizens, and various interest payment
options along with income tax deductions but without any market-related risks. It
is important to compare the latest fixed deposit rates among leading banks in the
country before opening a new fixed deposit or renewing an existing one. The
interest rates for the general public range from 3.00% p.a. to 9.00% for tenures
from 7 days up to 10 years. Senior citizens are offered interest rates that are
higher by 0.50% to 0.75% of the rates offered to the general public

Fixed Deposit Interest Rates of Top 5 Banks in India for below Rs.2 crore
Given below are the latest interest rates offered by top banks for tenures ranging from 7
days to 10 years as of April 2023.

Senior Citizen Fixed Deposits

Fixed deposits for senior citizens have some features that differentiate them from fixed
deposits for the general public, such as:

 The depositor should be 60 years and above at the time of opening the fixed deposit
account
 Depending on the bank, interest rates are higher by 0.25% to 0.50%
 The tenure is between 7 days and 10 days
 Loan against FD can be availed
 Penalties for premature withdrawal are the same as for the general public

Finance Minister "Nirmala Sitharaman" Announces New Saving Scheme for

Women

Nirmala Sitharaman, the union finance minister, introduced the "Mahila Samman Saving
Certificate," which offers a fixed interest rate of 7.5% for two years.

The deposit may be made in a woman's or a girl's name. The maximum deposit is Rs. 2
lakh, and the programme also offers the option for partial withdrawals.

Factors that Affect FD Interest Rates

There are many factors that affect FD interest rates, some of which are given below:

 Deposit Tenure: The lower the tenure, the lower will be the interest rate and the
higher or medium range the tenure, the higher the interest rate will be.
 Deposit Amount: Higher deposit amounts will fetch you higher interest rates,
especially bulk deposits exceeding Rs.1 crore.
  Depositor type: Senior citizens typically get 0.25% to 0.50% additional interest
rate on fixed deposits.

Fixed Deposit Interest Rate Calculator

The interest you can earn on your deposited amount depends on multiple factors,
including the amount invested, tenure, rate of interest, interest computation frequency,
and taxation. You can calculate the returns on your investment by using an FD
calculator. The entire process of calculating the amount is easy and hassle-free. All you
need to do is enter the deposit term, choose the type of FD (reinvestment, quarterly, or
monthly payment), the investment amount, the date of account opening, and the interest
rate.

How to Choose the Right Fixed Deposit

Here are the factors to look into when choosing a fixed deposit:

1. Compare the FD interest rates of different banks.

2. Review the credibility of the lender by examining the fixed deposit’s safety rating
as given by ICRA or CRISIL.
3. Choose whether you want a cumulative or non-cumulative fixed deposit.
4. Choose a bank that offers good customer service and a hassle-free process for
opening an FD.