Over the last few decades, plenty of new age investment products have risen, and designed to suit the modern financial requirements. In spite of these attractive features, fixed deposits have always been a favourable option for traditional and new age investors. The new generation has enjoyed a great rise in disposable income, looking out for optimized investment options that will offer them the best of returns.
However, owning to its hoary features, plenty of myths associated with this product have risen over the last few decades. This is especially occurred since this product has not conformed to the ever changing financial trends. Here are a few common myths of the fixed deposits and truth behind them:
Only banks offer this termed deposit:
Many individuals are under the impression that only banks offer fixed deposits. However, in addition to nationalized and private banks, companies and other non-banking financial companies have the authority to accepted investments in the form of fixed deposits. These fixed deposits offer you the same benefits as banks, but with better rates. However, for better security and returns, banks is the ideal choice for it.
Taxation on interest of fixed deposit:
The return on interest on fixed deposits is fully taxable. Additionally, it will be included in addition to your total income, under the category of income from other sources. If the interest you earn exceeds Rs. 10,000, then TDS will be deducted at a 10% rate. However, since the marginal rate of the income tax varies between 20% and 30%, any excess liability associated with your taxation will be needed to be paid at the time of filings of your returns. If you taxable income is zero, you can avoid TDS by submitting Form 15G or 15H accordingly.
Fixed deposits give you tax benefits:
You can get tax benefits under section 80C for your fixed deposits. However, this is only applicable to specific deposits, which have a lock-in period of 5 years. To make the most of this tax benefit, you must choose a scheme that will provide you with a tax saving option.
You can break your FD for any emergency financial requirement:
Most financial institutes and banks offer the means to break the fixed deposit if there is any urgent financial requirement. However, when this step is taken, the rates of your termed deposit is reset. In other words, you will earn lower interest. As an alternative to this solution, some financial institutes offer and overdraft facility against a fixed deposit. In other words, you can use this deposit as a collateral for a loan.
In reality, fixed deposits, have passed through several decades of financial progression. However, the myths associated with this deposit, are mostly not applicable. By debunking these myths, you can make the most of your investment by creating the ideal investment strategy.