In the world where different investment avenues scream for attention, it is significant to find an opportunity that provides both security and decent returns. One such great avenue is the Tax Saving Fixed Deposit (FD).
Reasons Why Tax Saving FD Should Be a Part of Your Financial Plan
1. Tax Deduction Benefit: Tax Saving FD offers tax benefits under Section 80C of the Indian Income Tax Act. An investor can claim a deduction for investments up to INR 1.5 lakhs in a financial year. Suppose an individual in the 30% tax bracket invests INR 1.5 lakhs in Tax Saving FD. He can claim a tax deduction of INR 45,000 (30% of 1.5 lakhs). Thus, this significantly reduces your tax liability.
2. Guaranteed Returns: With Tax Saving FDs, the returns are guaranteed. Unlike market-linked investments, the interest rate of FD is fixed at the time of investment. Even if the market rates fluctuate, your returns remain unaffected.
3. Flexibility: Tax Saving FD: Offer flexibility in terms of interest payout. You can choose either cumulative or non-cumulative interest payout options. In the case of cumulative FDs, the interest is compounded annually and payable at the time of maturity. In non-cumulative FDs, interest income can be received monthly, quarterly, half-yearly, or annually.
4. Safety of Investment: Fixed deposits are one of the safest investment options. They are not affected by market volatility. Your principal amount and the interest earned is secured and guaranteed by the bank. Plus, there is an additional layer of protection as deposits up to INR 5 lakhs are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
5. Higher Interest Rates: Compared to savings accounts, FDs provide a higher rate of interest. Senior citizens can enjoy an additional interest rate, usually 0.5% higher than regular FD rates, which leads to better earnings.
Summary
Tax Saving FD are beneficial instruments for risk-averse individuals looking for safe investment avenues that not only offer decent returns but also help save taxes. The stability, flexibility, and security offered by these investments make them a smart addition to anyone’s financial plan.
However, this is not meant to be a recommendatory piece. Every investor must gauge all the pros and cons of trading in the Indian financial market. An informed decision should be taken based on individual financial goals, risk appetite, and market analysis.
