Understanding Fixed Deposits in India: A Guide to Regular Earnings and Security
In the vast realm of financial instruments available in India, Fixed Deposits (FDs) stand out as a favored choice for many. Revered for their simplicity and security, FDs offer a stable avenue for investment, essentially making them a popular savings scheme. But have you ever wondered if it’s possible to earn from your fixed deposit on a monthly basis? Let’s delve into the two primary types of fixed deposits to understand this better.
The Two Types of FDs
Fixed Deposits in India can be broadly categorized into two types:
- Cumulative Fixed Deposits: With this scheme, the interest on the principal amount gets compounded and is paid out at the end of the maturity period. So, when the deposit matures, investors receive both their original investment and the accumulated interest.
- Non-Cumulative Fixed Deposits: This type of FD allows investors to receive interest payouts at regular intervals, be it monthly, quarterly, semi-annually, or annually. The choice of the interval is usually up to the investor.
Advantages of Non-Cumulative FDs
Many renowned banks, including SBI and ICICI, offer non-cumulative FDs. One of the distinctions to note about non-cumulative FDs is that they tend to have slightly lower interest rates than their cumulative counterparts. The reason being, the interest is paid out at regular intervals, eliminating the benefit of compounding.
However, there’s a silver lining. With regular interest payouts, investors enjoy more liquidity. This means they always have some cash on hand, making it beneficial for those who require a consistent cash flow. Moreover, non-cumulative FDs also provide the option of availing a loan against the deposit. And there’s typically no upper limit on the investment amount in this scheme.
Who Should Opt for Non-Cumulative FDs?
Non-cumulative FDs are particularly beneficial for individuals who lack alternative income sources or whose primary income might not suffice their regular expenses. Investing in cumulative FDs might not cater to their immediate needs, as the returns are available only at maturity. On the other hand, non-cumulative FDs ensure their money remains secure, they receive a decent return, and they continually get interest payouts, aiding their financial stability.
While both types of FDs have their merits, it’s vital to understand one’s financial needs and goals before making a choice. Non-cumulative FDs are a beacon of hope for those looking for regular income while ensuring their principal remains intact.
