A recent survey conducted by the Securities and Exchange Board of India (SEBI) reveals, that 95% of Indians pin their hopes on parking funds in a fixed deposit. Although there are many other profitable investment tools, why do people prefer fixed deposits as their investment? Well, at the very least, we can say it is due to fixed deposit interest rates. Banks and NBFCs offer a good deal of FD interest rates, making it one of the best investment tools.
Fixed deposits offer investors an array of benefits. Here are what you get when you invest your money in fixed deposits:
When you deposit money in FDs, you get promised returns at the time of FD maturity.
The finance market offers you several investment tools, but fixed deposits are considered to be the safest ones. It is not led by market fluctuations, ensuring the investors get the promised returns. The fact that the returns are not dependent on the stock-market swings makes it a safe investment tool.
The FD interest rates range from 2.3% to 7.75%. The offered FD rates vary from one bank to another. Additionally, senior citizens get an interest rate of 0.5-1% more than the one offered to the general citizens. However, the offered fixed deposit interest rate will be subject to deposit time and tenure.
You get the option to withdraw funds from your fixed deposit if needed. Additionally, you can increase the deposit amount by a multiple of ten. In other words, you get high returns with flexible deposit options.
The utmost feature you get with FD is that you can take out a loan against FD to meet your financial obligations. This comes in handy if you need urgent funds. There’s no need to make premature withdrawals from your long-saved fixed deposit.
There are certain factors that affect the FD interest rates. If you are investing in a fixed deposit, it is obvious you are looking for savings and returns. The interest rate you will get becomes crucial as it will determine the returns you will receive in the end. You must be familiar with the factors that affect the interest on fixed deposits.
Below-depicted factors affect the fixed deposit interest rates in banks:
Interest on fixed deposits varies as per the chosen time frame at the time of opening a fixed deposit account. Many banks and NBFCs offer investors high FD interest rates for a specific tenure. For instance, you will get higher FD returns if you opt for a duration of 1.5 years rather than 1 year
The total amount that you have decided to invest in your FD during the investment tenure also affects the offered FD interest rates. For instance, if you are investing an amount of INR 25,000, you can get an interest rate of 8.75% from the top FD rate providers.
Banks and NBFCs allow investors to count on auto-renewal. With auto-renewals, you can secure higher fixed deposit interest rates. Additionally, you dont have to keep track of your FD renewal date. In general, investors can get an additional 0.10% to 0.50% interest rate on their FDs through auto-renewal.
Investors age also plays a significant role in determining the applicable interest rate on an FD. Usually, senior citizens earn a higher rate of interest compared to investors of average age. Moreover, banks offer 0.35% higher interest rates of fixed deposits to senior citizens on the contrary to general citizens.
Ongoing economic conditions across the nation, together with monetary policy and fiscal policy can create a significant impact on FD interest rates.
Fixed deposit interest rate calculator is an advanced tool that allows you to compute FD returns by just entering a few values in the calculators. The interest you will get on the deposited amount depends upon the invested amount, duration, offered FD interest rate and frequency of interest computation.
All you have to do is enter the said details in the text area, and the computed value, i.e. fixed deposit returns that you will get, will be displayed on your screen. Now you can compare fixed deposit interest rates offered by numerous banks in one place. Just enter the interest rate banks offer and compare the returns you will get at maturity.
Move forward with the provider that offers the best FD interest rates and higher returns.
As you know all such incomes are subject to income tax. So the very next question that strikes through your mind is whether the income that you will earn through FDs will be taxable or not. So, here is what you must go through before investing in fixed deposits:
The following table lists top five corporate FD rates in India 2024.
| Company Name | 1-year (Interest Rate p.a.) | 3-year (Interest Rate p.a.) | 5-year (Interest Rate p.a.) | Duration | FD Interest rate for Senior Citizen (In Percent) |
| Shriram Transport Finance Company Limited. | 6.31% | 7.48% | 7.62% | 12 to 60 months | 0.5 |
| Shriram City Union Finance Company Limited. | 6.31% | 7.48% | 7.62% | 12 to 60 months | 0.5 |
| Muthoot Capital Services Limited. | 6.25% | 6.75% | 7.25% | 12 to 60 months | 0.25 |
| Bajaj Finance Limited. | 6.2% | 7.4% | 7.4% | 12 to 60 months | 0.25 |
| Kerala Transport Development Finance Corporation Limited | 6% | 6% | 5.75% | 12 to 60 months | 0.25 |
With fixed deposits investors get an incredible opportunity for earning the highest rate of return. The best part about such an investment tool is, that it is a risk-free investment. You can build a corpus by depositing small amounts in a fixed deposit account for a specific duration of time.
| Mode of Payment | Method for quotation rate per transaction | Payment Gateway Service Provider |
| IndiaIdeas.com Limited (Billdesk) | ||
| Credit cards | Percentage (%) of transaction value | 0.75% |
| Debit cards | Free | NA |
| Internet Banking | The flat rate in INR | 0 |
| UPI | Free | NA |
A national pension scheme does not offer a fixed interest rate. NPS provides a promising return based on the market performance of the funds as the investments are made in market-linked securities. Also, the NPS contribution can be made in four different asset classes: equities, government bonds, corporate bonds and other alternative assets. Also, the returns offered depend on the market performance of the stocks and bonds.
The national pension scheme offers tax exemption on the NPS contribution you made under the scheme. The maximum limit of tax exemption is Rs. 1.5 lakh. In this NPS scheme, the contribution made by the employee and the employer is applicable for tax exemption. The Sections applicable under the Income Tax Act, 1961 are as follows:
This is a part of the self contribution. The maximum deduction is 10% of the salary, which can be claimed for the exemption of tax. Further, for people who are self-employed, the limit is 20% of the gross income.
This section covers the contribution made by the employers toward the NPS scheme. However, it is not applicable to self-employed taxpayers. Under this section, the maximum amount allowed for tax exemption is the lowest of the:
Further, you can claim additional self contribution under Section 80CCD(1B) as a National Pension Scheme tax benefit.
The NPS fees and charges are divided into various categories, as explained below:
| Charge head 1 | For Private | For Government |
| Permanent Retirement Account (PRA) Opening charges | For physical PRAN card NCRA Rs. 40 KCRA Rs. 39.36 | For ePRAN card NCRA Rs. 35 (Physical welcome kit) / Rs. 18 (Welcome kit via email) KCRA Rs. 39.36 (Physical welcome kit) / Rs. 4 (Welcome kit via email) |
| Maintenance cost of PRA (Annually) | For physical PRAN card and ePRAN card NCRA: Rs. 69 KCRA: Rs. 57.63 | |
| Transaction charges | For physical PRAN card and ePRAN card NCRA: Rs. 3.75 KCRA: Rs. 3.36 | |
Note: The reduction charges will be applicable on the current charge structure and exclude all the applicable taxes that will be applicable after the release of the functionalities by CRAs to choose NPS subscribers to either have physical or ePRAN cards.
| Charge head | For Private |
| Initial contribution during registration | For Private: Rs. 200 |
| Additional transactions | For Private: 0.25% of the contribution Min. Rs. 20 Max. Rs. 25000 For non-financial it is Rs. 20 |
| Persistency | For Private: Rs. 50 per annum |
| Less than 6 months and contribution of Rs 1000 | For Private: Rs. 50 per annum |
| eNPS Contribution | For Private: 0.10% of contribution Min. Rs.10 Max. Rs.10000 |
No charges
| Charge head | For Private |
| Asset Servicing charges | 0.0032% per annum for the Electronic segment & Physical segment |
| Charge head | For Private |
| Reimbursement of Expenses | 0.005% per annum |
| Mode of Payment | Method for quotation rate per transaction | Payment Gateway Service Provider |
| IndiaIdeas.com Limited (Billdesk) | ||
| Credit cards | Percentage (%) of transaction value | 0.75% |
| Debit cards | Free | NA |
| Internet Banking | The flat rate in INR | 0 |
| UPI | Free | NA |
The eligibility criteria are as follows:
The National Pension Scheme is of two types:
It is a basic pension scheme with withdrawal limitations. The subscriber can only withdraw 25% of the contribution before the age of 60. However, 75% of the contributed amount is used for buying the annuity from a life insurer.
An annuity means a series of payments made at fixed, regular intervals of time. An annuity is planned in such a manner that the income is given to the person at regular intervals until the death or maturity of the plan.
After turning 60, almost 60% of the contribution can be withdrawn, and the rest of the 40% is used for purchasing the annuity from approved life insurance.
This savings category is optional, from which the applicant can withdraw money anytime without any limit.
The National Pension Scheme Withdrawal Process has three types of withdrawal. They are as follows:
As a subscriber, you have to initiate an Online Withdrawal request through your NPS account login credentials.
ELSS or the Equity Linked Saving Scheme is an exclusive mutual fund scheme that mainly invests in equities and stock market. This scheme is particularly popular among investors owing to the tax benefits as covered under Section 80C of the Income Tax Act.. The investors prefer this scheme to other investment options owing to the optimum liquidity this scheme provides owing to its short lock-in period.
The ELSS employs an aggressive investment approach to maximise profits for the investors who wish to invest in schemes that yield higher returns. The investors can invest in the scheme by either employing SIP (Systematic Investment Plan) or by opting for lump sum investments.However, if the investor is funding the scheme through the SIP option, the maturity date of each installment would differ.
The ELSS schemes are subject to market risks as the money invested is volatile to fluctuations in the stock markets, since this is a market linked savings scheme.
Given below are some of the features of an Equity Linked Saving Scheme:
A major chunk of the fund is allocated towards securities who orientate their positions on equities. However, most ELSS schemes also have a fair bit of exposure towards fixed income securities also.This enables the investor to get higher returns as compared to other investment options.
The scheme offers ideal liquidity for investments i.e. three years. However, there are no provisions set in case the investor wants to exit the fund prematurely. After the maturity period the investor has the option to reinvest or depart from the scheme by trading their securities.
The maturity period for the scheme is three years which makes it the shortest among other long-term investing schemes. This is ideal for investors looking for significant returns in a shorter period of time. However, since these are a market linked scheme, the possibility of guaranteed returns is bleak in comparison to other investment options.
There is no maximum cap on the investments made to the ELSS scheme. It also offers headroom to the investors who are inclined to invest a smaller amount with minimum requirement going as low as Rs 500. The minimum investment amount tends to differ according to the fund house, so the investor can plan their investments according to their financial situation.
The Equity Linked Saving Scheme is one of the most widely used tax-saving investment options.The ELSS offers annual tax return of upto Rs 150,000 in accordance with the Section 80C of the Income Tax Act. The profits from the investment made after the lock-in period are exempted upto a limit of Rs 1,00,000.Any gains made over the exemption limit will be taxed at a rate of 10%.
The ELSS offers an avenue to the investors who want to invest in dynamic and aggressive securities which tilt towards maximizing tax-free returns on the amount invested. The scheme provides an opportunity for investors to expand their savings which would be attuned to the high-inflation rates. As these investments mainly invest in equity options, a substantial amount of returns can be generated throughout the investment period.
The fund predominantly invests in equity oriented securities which makes it prone to volatility in the market. Since the returns on investment that you get from this scheme is mainly linked to the stock market, it does not guarantee fixed returns. The returns that you get from this scheme will depend on the ups and downs on the market.
Given below are some of the benefits of investing in an Equity Linked Savings Scheme option:
The ELSS is a popular choice among the medium to long term investors as it is directly linked to the stock market. The other fixed income avenues such as PPF and FDs lose out on the significant profits the market offers to the investors. The interest accrued from these fixed income securities is fixed whereas the ELSS scheme strives for maximum returns on the money invested. The potential to churn profits from the investments is boundless if the investor chooses to invest in an efficient mutual fund.
The lock-in period for this investment is just three years which makes it the shortest when compared to other fixed deposit counterparts. Funds like PPF and FDs have decided on the maturity period of 15and 5years respectively. Therefore, ELSS offers the highest returns with the lowest investment lock-in period.
The scheme offers attractive tax advantages on the profits which are made by the investor after the maturity period. The investor is eligible to take home their proceeds with little tax levied as the scheme is covered under the Schedule 80C of the Income Tax Act The taxpayer can claim exemptions upto Rs 1,50,000 in an investment year. Thus, an Equity Linked Saving Scheme automatically entails lower tax expenses for the investor.
An investor can opt to invest in the scheme through SIPs where they can simply invest the money on a monthly basis in a hassle-free manner. Through a Systematic Investment Plan, the investor is in charge of the investment amount for each period. The investment amount can be increased or decreased according to the market and financial conditions of the investor. This also inculcates a sense of systematic saving as the investor will have to plan their finances around their investment payments.
The investments made to the ELSS fund are eligible for tax benefits under the Section 80C of the Income Tax Act. In accordance with the Act,, amounts upto Rs 1,50,000 are eligible for tax deductions. The investor can save upto 46,800 annually due to these exemptions.
Given below are some of the benefits of investing in an Equity Linked Savings Scheme product:
The ELSS offers a lucrative deal to its investors as the mutual fund maintains a portfolio that spreads across all the sectors to optimize profits for its investors. The fund gives an opportunity to its investors to make long-term gains from the equity market. The diversified portfolio ensures attractive returns to its investors who are seeking to make the most out of their investments, while also ensuring relative investment safety.
It provides a viable option for investors who are averse to risk-taking and are inclined to invest small amounts on a consistent basis. Like any other mutual fund an individual can opt for monthly SIPs which also offers an option of SIP top-up where the investor can increase their investment in the scheme by increasing their monthly SIP amount. By going for the SIP option, you can continue investing consistently and according to changing market conditions.
Since this scheme is directly linked to the stock market, there is always a possibility of significant return on investment. The ELSS funds generate double the returns on their investments. According to figures, on an average the ELSS generates close to 12% profits over a ten year period as the funds are invested in equities that sponge higher returns from the market. This is much higher as compared to other savings scheme options available.
The investor who is inclined to invest in the ELSS scheme should account the following factors before they commence with their investment:
The investor should meticulously determine the horizon of their investment. The interested individual should be willing to invest long-term to get the most out of their profits to diminish market volatility as the money would be ultimately invested in the equity market.
The money invested does not offered guaranteed returns unlike other fixed investments. It is subject to market fluctuations so the investor shall be ready to hold their compose incase the market is volatile. The investor should have a long-term association in mind with the fund to yield maximum returns.
Since ELSS funds mainly invest in equity options, the risks involved are somewhat similar to that of investing in the stock market. However, this does not mean that ELSS are always high risk fund schemes, there are different types of fund levels to cater to the needs of different types of investors. It is important to note that while investing, high risks are often linked to high returns. Be sure to choose your investment according to your financial goals and plans
A systematic investment plan is one of the ways to consistently invest small amounts into mutual funds. This allows the investor to take advantage of the rupee-cost averaging and bring down the average price the mutual fund units are purchased at. While SIPs are considered the best way to start investing, they are particularly useful when the markets are failing. In this method, you invest a fixed amount at regular intervals and by units at the prevailing NAV. This eliminates the risk of a lump sum investment when the market is at a high.
The National Pension Scheme is also known as the National Pension System. In the NPS scheme, the subscribers make a minimum contribution of Rs.6,000 in a fiscal year. This contribution can be paid in total or as a monthly instalment of a minimum of Rs. 500.
In simple words, the money you invest in a market-linked investment and the returns depend on the performance of the market. At present, the interest rate of NPS is 8-10% on the amount you invest.
It is open to all employees from the public, private and even the unorganised sector except for people who work in the armed forces. The National Pension Scheme can be extended for ten years once the person turns 60 years old.
| Scheme | NAV | 1 day | 1 month | 3 months | 6 months | Year | 3 Years | 5 Years |
| ICICI PRUDENTIAL PENSION FUND SCHEME C – TIER II | 31 | -1.58% | -1.30% | -3.00% | -2.40% | 0.60% | 7.00% | 7.20% |
| LIC Pension Fund Scheme – State Govt. | 31 | -1.82% | -1.50% | -3.20% | -4.10% | 0.20% | 7.00% | 7.30% |
| SBI PENSION FUND SCHEME – STATE GOVT | 31 | -1.13% | -0.70% | -2.30% | -3.10% | 1.00% | 7.30% | 7.50% |
| UTI RETIREMENT SOLUTIONS PENSION FUND SCHEME- STATE GOVT | 31 | -1.45% | -1.10% | -2.70% | -3.60% | 0.50% | 7.20% | 7.50% |
| SBI PENSION FUND SCHEME C – TIER II | 30 | -2.04% | -1.70% | -3.40% | -3.50% | -0.50% | 6.40% | 6.80% |
| SBI PENSION FUND SCHEME G – TIER I | 30 | -3.36% | -3.10% | -5.30% | -6.00% | -3.10% | 5.50% | 6.50% |
| UTI RETIREMENT SOLUTIONS PENSION FUND SCHEME C – TIER I | 30 | -0.48% | 0.00% | -2.10% | -1.80% | 1.10% | 8.60% | 7.00% |
| NPS Lite Scheme – Govt. Pattern | 29 | -1.90% | -1.50% | -3.10% | -3.90% | 0.40% | 7.30% | 7.60% |
| NPS TRUST A/C-SBI PENSION FUNDS PRIVATE LIMITED- NPS LITE SCHEME – GOVT. PATTERN | 29 | -1.85% | -1.60% | -3.00% | -3.70% | 0.40% | 7.00% | 7.40% |
| NPS TRUST A/C-UTI RETIREMENT SOLUTIONS LIMITED- NPS LITE SCHEME – GOVT. PATTERN | 29 | -1.20% | -0.90% | -2.50% | -3.20% | 0.90% | 7.30% | 7.60% |
NPS offers great market returns and a premature withdrawal facility. This feature makes it an attractive pension scheme. Here are the benefits of the National Pension Scheme:
A national pension scheme does not offer a fixed interest rate. NPS provides a promising return based on the market performance of the funds as the investments are made in market-linked securities. Also, the NPS contribution can be made in four different asset classes: equities, government bonds, corporate bonds and other alternative assets. Also, the returns offered depend on the market performance of the stocks and bonds.
The national pension scheme offers tax exemption on the NPS contribution you made under the scheme. The maximum limit of tax exemption is Rs. 1.5 lakh. In this NPS scheme, the contribution made by the employee and the employer is applicable for tax exemption. The Sections applicable under the Income Tax Act, 1961 are as follows:
This is a part of the self contribution. The maximum deduction is 10% of the salary, which can be claimed for the exemption of tax. Further, for people who are self-employed, the limit is 20% of the gross income.
This section covers the contribution made by the employers toward the NPS scheme. However, it is not applicable to self-employed taxpayers. Under this section, the maximum amount allowed for tax exemption is the lowest of the:
Further, you can claim additional self contribution under Section 80CCD(1B) as a National Pension Scheme tax benefit.
The NPS fees and charges are divided into various categories, as explained below:
| Charge head 1 | For Private | For Government |
| Permanent Retirement Account (PRA) Opening charges | For physical PRAN card NCRA Rs. 40 KCRA Rs. 39.36 | For ePRAN card NCRA Rs. 35 (Physical welcome kit) / Rs. 18 (Welcome kit via email) KCRA Rs. 39.36 (Physical welcome kit) / Rs. 4 (Welcome kit via email) |
| Maintenance cost of PRA (Annually) | For physical PRAN card and ePRAN card NCRA: Rs. 69 KCRA: Rs. 57.63 | |
| Transaction charges | For physical PRAN card and ePRAN card NCRA: Rs. 3.75 KCRA: Rs. 3.36 | |
Note: The reduction charges will be applicable on the current charge structure and exclude all the applicable taxes that will be applicable after the release of the functionalities by CRAs to choose NPS subscribers to either have physical or ePRAN cards.
| Charge head | For Private |
| Initial contribution during registration | For Private: Rs. 200 |
| Additional transactions | For Private: 0.25% of the contribution Min. Rs. 20 Max. Rs. 25000 For non-financial it is Rs. 20 |
| Persistency | For Private: Rs. 50 per annum |
| Less than 6 months and contribution of Rs 1000 | For Private: Rs. 50 per annum |
| eNPS Contribution | For Private: 0.10% of contribution Min. Rs.10 Max. Rs.10000 |
No charges
| Charge head | For Private |
| Asset Servicing charges | 0.0032% per annum for the Electronic segment & Physical segment |
| Charge head | For Private |
| Reimbursement of Expenses | 0.005% per annum |
| Mode of Payment | Method for quotation rate per transaction | Payment Gateway Service Provider |
| IndiaIdeas.com Limited (Billdesk) | ||
| Credit cards | Percentage (%) of transaction value | 0.75% |
| Debit cards | Free | NA |
| Internet Banking | The flat rate in INR | 0 |
| UPI | Free | NA |
The eligibility criteria are as follows:
The National Pension Scheme is of two types:
It is a basic pension scheme with withdrawal limitations. The subscriber can only withdraw 25% of the contribution before the age of 60. However, 75% of the contributed amount is used for buying the annuity from a life insurer.
An annuity means a series of payments made at fixed, regular intervals of time. An annuity is planned in such a manner that the income is given to the person at regular intervals until the death or maturity of the plan.
After turning 60, almost 60% of the contribution can be withdrawn, and the rest of the 40% is used for purchasing the annuity from approved life insurance.
This savings category is optional, from which the applicant can withdraw money anytime without any limit.
The National Pension Scheme Withdrawal Process has three types of withdrawal. They are as follows:
As a subscriber, you have to initiate an Online Withdrawal request through your NPS account login credentials.
Public Provident Fund (PPF) is an investment tool that has enormous investor-friendly features and tax benefits. It is a long term investment plan introduced in 1968. The main feature is that the PPF scheme offers a high but stable return on the invested amount. In other words, people who want to keep their principal savings safe and secure their post-retirement life open their accounts under the PPF scheme.
The Public Provident Fund (PPF) scheme is a long term investment option that provides appealing interests and returns on the invested amount. However, the returns and interest earned are not taxable under the Income Tax Act, 1961. But one has to open a PPF account under this scheme. The amount deposited annually will be claimed under Section 80C.
| Rate of Interest | 7.1% per annum |
| Minimum Investment Amount | Rs.500 is the minimum investment amount |
| Maximum Investment Amount | Rs 1.5 lakh per annum is the maximum investment amount |
| Maximum Tenure | 15 years is the maximum tenure |
| Profile of Risk | Offers are available and offer risk-free returns |
| Benefit in Tax | Up to Rs.1.5 lakh under Section 80C |
Here are the features and benefits an individual can enjoy under the Public Provident Fund scheme.
The eligibility criteria for Public Provident Fund are as follows:
Given below are the documents required for opening a PPF account:
Once the documents are submitted, the investor has to deposit the amount towards the opening account. PPF accounts can be opened online only at the bank using internet banking.
Recently, Systematic Investment Plans (SIPs) have become one of the most popular investment tools in the financial market. This can be attributed to the benefit of compounding interest, rupee cost averaging and the ability to offset any potential losses.
In place of investing in a lump sum amount during market highs and lows, an SIP enables investors to invest systematically throughout the business cycle and distribute the cost evenly. They also help effectively balance out long term risks, providing stable and steady returns.
A Systematic Investment Plan or SPI is a convenient investment tool that enables the investor to systematically invest a pre-decided amount of money in mutual funds at regular intervals. The investment can be made in an organised manner on an annual, half-yearly, quarterly, monthly or weekly basis. This allows the investor to earn regular returns via a pre-planned tool and flexibility in asset management and investment amount.
Given below are some of the benefits of investing in a Systematic Investment Plan:
One of the most important benefits of investing in an SIP is the compounding interest it offers to investors. Since the investor makes deposits at regular intervals, the investment amount earns more interest over the investment period. The amount invested earlier has more time to aggressively earn interest throughout the tenure. Let’s understand this with the help of an example:
Example: Let’s assume that X, 40 years old, invests Rs. 10,000 in a SIP with an interest rate of 7%. They will earn Rs. 52,40,000 when they reach retirement age. Now let’s assume that Y, who is 30 years old, invests Rs. 10,000 in the same investment scheme. They will earn Rs. 1.22 crore upon maturity. Due to the significant ten-year difference in the investment period, Y earns more than double what X gains with their investment.
When you decide to invest in an SIP, you should not rely only on hearsay and speculation to invest your hard-earned money into mutual funds. Volatility is a constant in any equity investment option. Therefore, mutual funds use the rupee-cost averaging method, which relies on averaging the price at which you purchase units of a mutual fund. The fundamental law of demand states that the price of a commodity goes down when purchased in large quantities. This method will account for any losses that an investor may incur due to the market’s volatility.
Since investors can choose to invest a particular amount at a predetermined frequency, they enjoy more financial flexibility. This allows the investor to plan their monthly expenses around their investment and earn significantly.
Even though investors can hold their investments in SIPs over a long-term period, there is no specified duration during which the investment has to be made. Investors can choose to withdraw from the investment plan at any given point.
The regular investment amount can also be changed according to the investor’s choice. Additionally, the investor can place standing instructions to their bank so that the investment amount is auto-debited on the investment date.
The Systematic Investment Plans available in the country can be broadly classified based on investment objective and instalment flexibility:
SIPs can be defined as mutual funds with an interval-based mode of payment. The underlying funds in an SIP can be debt-focused, equity-oriented or balance oriented. These are categorised according to the underlying asset class.
Equity funds usually offer high-risk high returns, while debt options offer low risk and comparatively lower returns. Balanced SIPs are less riskier than equity funds but are more volatile than debt funds.
Further, some Systematic Investment Plans can be used as tax-saving instruments or insurance products like the ULIPs (Unit Linked Saving Schemes) and ELSS (Equity Linked Savings Scheme). These investment schemes are tax-exempt as per Section 80C of the Income Tax Act.
In this investment plan, the investor decides an investment amount and makes recurring payments. They do so by giving standing instructions to their banking partner or enabling the electronic transfer of funds from their account to the SIP account. Since the regular intervention is not required from the investor, it is a fairly simple and hassle-free process. An equal amount of money is invested in the case of market highs or lows. This effectively averages out the cost of SIP units purchased.
This investment allows the investor to change their investment amount as per their requirements. This way, the investor can purchase more units when the market is at a low and vice versa. This is dictated by a predetermined formula that enables the investor to react according to the market’s volatility.
You can modify your investment amount according to the ever-changing market conditions and financial conditions. When facing a financial crisis, you can decrease the investment amount and increase it when the situation improves or you have a surplus. For this, you will have to inform the fund manager at least a week before the investment deduction.
A Step-up SIP or Top-up SIP is a kind of investment scheme that enables the investor to increase the investment amount when required. You can start the investment at a regular amount and go for a top-up option.
For example, if you invest in a monthly SIP with Rs. 5,000, you can ask the provider to increase the amount by Rs. 1,000 every 12 months. This is ideal for salaried professionals who expect annual appraisals or bonuses. You can eventually increase your contributions to the SIP account as per increased spending power and gain more returns by investing more money.
Usually, SIPs require investors to state the investment tenure they wish to park their investment. However, in the case of Perpetual SIPs, the investor is required to mention the investment start date but not the end date.
In fact, if no maturity date is mentioned on your offer documents, it is considered to be a Perpetual SIP. This implies that this investment scheme will continue till the investor requests the asset manager to discontinue the SIP. If the investor does not wish to limit their investment post the maturity date, they can voluntarily choose a Perpetual SIP and go for a longer duration.
As the name suggests, in this investment scheme, the stakeholder gets to trigger an investment clause to account for the highs and lows of the market. You can trigger the clause by redeeming units, starting the SIP or transferring to another plan.
This is ideal for seasoned investors who have a knack for predicting market behaviour and can set triggers for specific events. You can effectively set triggers if you have a firm understanding of market conditions and know when to buy or sell the units of an SIP.
This investment scheme enables the investor to invest in multiple funds of a provider via one SIP. For instance, if you invest Rs 4,000 monthly in a multi SIP, it may be split up into four units of Rs. 1,000 each. This way, the investor can avoid the massive paperwork and hassle of managing multiple SIP accounts. Further, this is also a convenient way to diversify your investment corpus.
One of the best features of SIP is that it offers the investor flexibility with respect to asset management and investing money in the mutual fund. This is ideal since the pre-decided amount will be automatically deducted from the investor’s bank account on the investment date and used to make investments in a mutual fund portfolio.
A Net Value Asset (NAV) is then allotted to the investor based on existing market conditions. Additional units under the existing fund will be purchased and added to the portfolio when an investment is made. This ensures that the units in a portfolio are purchased at different prices. Therefore, the investor benefits from the dual characteristics of rupee-cost averaging and compound interest.
Given below are some of the key factors that you should keep in mind while choosing the right SIP to invest in:
If you want to save some money overtime in small instalments, you can easily use a recurring deposit account. A recurring deposit account comes with flexible term options and helps you grow your savings with interest equivalent to any FD account. With minimal documentation, you can open an RD account for as less as six months tenure. This deposit account, therefore, comes handy to achieve both short-term and long-term goals.
Recurring Deposit or RD is a financial investment tool offered by Indian banks and NBFCs to individuals who wish to invest a small amount of money every month for an agreed term. It is a unique term deposit that offers flexibility and decent compounded returns over time. The maturity of recurring deposits can range from anywhere between 6 months to 10 years.
A Recurring Deposit account can be maintained in any bank offering the respective services. Generally, the customers have the flexibility to invest any amount depending on the minimum deposit requirements which differ from bank to bank. The interest returns on RDs are based on the policies of the financial institutions. This is a great savings opportunity for individuals with regular incomes.
It is indeed always in the best interest of everyone themselves and for their loved ones to develop an interest in financial management. Opening a Recurring Deposit Account is a great way to building secure financial aid for exigencies in life.
There are many strategic benefits of opening a Recurring Deposit Account. Firstly, an RD account lets individuals invest a recurring amount they are comfortable with. Moreover, the investment assures interest payments which are compounded quarterly as well. Additionally, the rate of interest generally is similar to that of a Fixed Deposit plan which means that individuals can enjoy higher returns than their savings capital.
Although subjective to financial institutions, it is possible to break the Recurring Deposit Account and withdraw money.
Other than that, one can seek loans with Recurring Deposits as collateral. Applicants can get as much as 80% of the decided RD revenue as the loan amount. Finally, for ease, individuals can instruct banks to make recurring investments automatically from their accounts through the standing instruction tool.
Before delving into the idea of an RD Account, one should keep in mind its general nature. An RD interest rate usually varies across banks within the range of 3%-6%. Other than that, deciding the maturity period holds great importance with regards to returns. For example, it is considered that the mid-term duration of maturity periods gives maximum returns as compared to short or long-term duration maturity periods.
Any individual, startup, company, proprietor or organization can invest in a recurring deposit account. In the case of minors, there needs to be proof of name for children above 10 and parental or guardian supervision for children below 10.
A mutual fund is an investment option where money from many people is pooled together to buy a variety of stocks, bonds, or other securities. This mix of investments is managed by a professional money manager, providing individuals with a portfolio that is structured to match the investment objectives stated in the fund’s prospectus.
By investing in a mutual fund, individuals gain access to a broad range of investments, which can help reduce risk compared to investing in a single stock or bond. Investors earn returns based on the fund’s performance minus any fees or expenses charged. In this way, mutual funds can give small or individual investors access to professionally managed portfolios of equities, bonds, and other asset classes.
There are several types of mutual funds available for investment, though most mutual funds fall into one of four main categories which include stock funds, money market funds, bond funds, and target-date funds.
As the name implies, this fund invests principally in equity or stocks. Within this group are various subcategories. Some equity funds are named for the size of the companies they invest in: small-, mid-, or large-cap. Others are named by their investment approach: aggressive growth, income-oriented, value, and others. Equity funds are also categorized by whether they invest in domestic (U.S.) stocks or foreign equities. To understand the universe of equity funds is to use a style box, an example of which is below.
Funds can be classified based on both the size of the companies, their market caps, and the growth prospects of the invested stocks. The term value fund refers to a style of investing that looks for high-quality, low-growth companies that are out of favor with the market. These companies are characterized by low price-to-earnings (P/E) ratios, low price-to-book (P/B) ratios, and dividend yields. Conversely, growth funds look to companies with strong earnings, sales, and cash flow growth. These companies typically have high P/E ratios and do not pay dividends. A compromise between strict value and growth investment is a “blend,” which refers to companies that are neither value nor growth stocks and are classified as somewhere in the middle.
Large-cap companies have high market capitalizations, with values over $10 billion. Market cap is derived by multiplying the share price by the number of shares outstanding. Large-cap stocks are typically blue-chip firms that are often recognizable by name. Small-cap stocks refer to those with a market cap ranging from $250 million to $2 billion. These smaller companies tend to be newer, riskier investments. Mid-cap stocks fill in the gap between small- and large-cap.5
FINRA. “Market Cap, Explained.”
A mutual fund may blend its strategy between investment style and company size. For example, a large-cap value fund would look to large-cap companies that are in strong financial shape but have recently seen their share prices fall and would be placed in the upper left quadrant of the style box (large and value). The opposite of this would be a fund that invests in startup technology companies with excellent growth prospects: small-cap growth. Such a mutual fund would reside in the bottom right quadrant (small and growth).
A mutual fund that generates a minimum return is part of the fixed income category. A fixed-income mutual fund focuses on investments that pay a set rate of return, such as government bonds, corporate bonds, or other debt instruments. The fund portfolio generates interest income that is passed on to the shareholders.
Sometimes referred to as bond funds, these funds are often actively managed and seek to buy relatively undervalued bonds to sell them at a profit. These mutual funds will likely pay higher returns but aren’t without risk. For example, a fund specializing in high-yield junk bonds is much riskier than a fund that invests in government securities.
Because there are many different types of bonds, bond funds can vary dramatically depending on where they invest, and all bond funds are subject to interest rate risk.
Index funds invest in stocks that correspond with a major market index such as the S&P 500 or the Dow Jones Industrial Average (DJIA). This strategy requires less research from analysts and advisors, so fewer expenses are passed on to shareholders, and these funds are often designed with cost-sensitive investors in mind.
Balanced funds invest in a hybrid of asset classes, whether stocks, bonds, money market instruments, or alternative investments. The objective of this fund, known as an asset allocation fund, is to reduce the risk of exposure across asset classes.
Some funds are defined with a specific allocation strategy that is fixed, so the investor can have a predictable exposure to various asset classes. Other funds follow a strategy for dynamic allocation percentages to meet various investor objectives. This may include responding to market conditions, business cycle changes, or the changing phases of the investor’s own life.
The portfolio manager is commonly given the freedom to switch the ratio of asset classes as needed to maintain the integrity of the fund’s stated strategy.
The money market consists of safe, risk-free, short-term debt instruments, mostly government Treasury bills. An investor will not earn substantial returns, but the principal is guaranteed. A typical return is a little more than the amount earned in a regular checking or savings account and a little less than the average certificate of deposit (CD).
Income funds are named for their purpose: to provide current income on a steady basis. These funds invest primarily in government and high-quality corporate debt, holding these bonds until maturity to provide interest streams. While fund holdings may appreciate, the primary objective of these funds is to provide steady cash flow to investors. As such, the audience for these funds consists of conservative investors and retirees.
An international fund, or foreign fund, invests only in assets located outside an investor’s home country. Global funds, however, can invest anywhere around the world. Their volatility often depends on the unique country’s economy and political risks. However, these funds can be part of a well-balanced portfolio by increasing diversification, since the returns in foreign countries may be uncorrelated with returns at home.
Sector funds are targeted strategy funds aimed at specific sectors of the economy, such as financial, technology, or healthcare. Sector funds can be extremely volatile since the stocks in a given sector tend to be highly correlated with each other.
Regional funds make it easier to focus on a specific geographic area of the world. This can mean focusing on a broader region or an individual country.
Socially responsible funds, or ethical funds, invest only in companies that meet the criteria of certain guidelines or beliefs. For example, some socially responsible funds do not invest in “sin” industries such as tobacco, alcoholic beverages, weapons, or nuclear power. Other funds invest primarily in green technology, such as solar and wind power or recycling.
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