Fixed deposits (FDs) Fixed deposits (FDs) have conventionally been popular investment avenues among risk-averse investors.

With the proposition of assured returns and safety of capital, FDs are right up the alley of risk-averse investors. However, FDs have their fair share of inadequacies as well. For example, during a rising interest rate scenario, the locked-in coupon rate could lead to an opportunity loss i.e. the investor is likely to miss out on new offerings with higher returns. Liquidity has always been a cause for concern with FDs. In effect, the straitjacketed nature of FDs has been a bit of a dampener. Fortunately for investors, new-age FDs are an evolved lot! They offer far greater flexibility to investors, thanks to their versatile nature. Hence, FD investors are no longer required to invest in "plain-vanilla" offerings. In this article, we take a closer look at some of the variants from the FD segment, which can find a place in the risk-averse investor's portfolio. 1.Tax-saving FDs Tax-saving is no longer the guarded domain of Public Provident Fund (PPF) and National Savings Certificate (NSC). Tax-saving FDs offered by banks are also eligible for deduction under Section 80C. The deposits are subject to a 5-Yr lock-in period. Presently, the returns on tax-saving FDs vary between 7.50%-8.50% per annum. The minimum and maximum investment amounts (per annum) have been pegged at Rs 100 and Rs 100,000 respectively. Introduction of tax-saving FDs offers risk-averse investors the opportunity to diversify across instruments while conducting the tax-planning exercise. 2.Variable rate FDs As the name suggests, the coupon rate i.e. returns offered by variable rate FDs are not fixed. Unlike conventional FDs, wherein the coupon rate is locked-in at the time of investment, the return on variable rate FDs changes in line with market conditions. The return is aligned to a benchmark rate. A change in the benchmark rate is reflected in the FD return. Hence, in a rising interest rate scenario like the present one, a variable rate FD would offer more attractive returns. Conversely, during a softer interest rate regime, the returns on variable rate FDs would turn less attractive. 3. FDs offering monthly returns Absence of liquidity has always been the bane of FD offerings. With returns being offered in lumpsum on maturity, FDs were often "off-limits" for investors like senior citizens and retirees for whom liquidity tends to be a prime requirement. The solution lies in FDs that offer a monthly income option. These FDs generate a monthly return based on the predetermined rate; on maturity the principal is returned to the investor. For senior citizens and retirees, FDs offering monthly income are an apt option, thanks to the combination of assured and regular returns, along with safety of capital.

Investing in line with one's risk appetite is a basic tenet of financial planning. For risk-averse investors, instruments like fixed deposits and bonds should form the core of the portfolio. However given that the FD segment is now coming of age, investors would do well to scrutinise the various options available to them and then make an informed choice.

Tax Saving Fixed Deposit u/s 80C

Section 80C provides the fixed deposit option for the tax exemption. The following are the key points regarding the tax saving fixed deposit u/s section 80C: 1. It has the lock-in period of 5 years. depositing under this scheme, you will not be able to take the money before five years. 2. The interest rates for this scheme will be vary for each bank. 3. Tax savings fixed deposit is available only through banks. You can not open it with company fixed deposit product. 4. Minimum of Rs.100 is deposited. 5. Maximum of Rs.100000 is exempted u/s 80c for one financial year. 6. If you are depositing in this scheme, there will not be many other benefits which is allowed for the normal fixed deposit o No Partial/Premature withdrawal allowed. o Sweep-in not allowed. o No Over Draft facility allowed. 7. If you have the joint account, the deductions u/s 80c will be allowed only for the first account holder. 8. The interest income for this fixed deposit is taxable.

Features of Tax Saver Fixed Deposits

Tax Saving Fixed Deposits can be purchased for a minimum amount of Rs. 100, and then in multiples of Rs. 100. The maximum amount eligible for tax deduction is Rs. 100,000 for a financial year. One of the major drawbacks of tax saving Fixed Deposit is that your amount will be locked for 5 year period. Investment made in Tax Saving FDs cannot be withdrawn nor can it be pledged for any reason during the tenure. Though the interest rates are varying very frequently and can change in the future, the currently prevailing interest rates on a tax saver fixed deposit is around 8% to 8.75%. This fixed deposit cannot be linked to a savings account and the surplus funds available under the savings account cannot be automatically invested in this fixed deposit. More over there is no overdraft facility available on the tax saver fixed deposit. As this instrument of saving money is special due to its tax saving status, normally banks do not extend relationship benefits on the tax saver fixed deposit. Anyone who is an Indian resident or Hindu undivided families (HUF) can apply for a 5 year tax saving fixed deposit.

Lock-in period These FDs have a lock-in period of 5 years. This means that once you invest, you can not withdraw the amount for 5 years. These FDs can not be pledged for any reason for these 5 years. Also, no overdraft facility is available for these tax saver fixed deposits.

No sweep-in facility The tax saving FD can not be linked to a savings account. They can not have a sweep-in (or auto sweep) facility, where surplus money from a savings account is automatically transferred to an FD account (or is saved as an FD).

Rate of Interest The rate of interest offered on these FDs is in line with interest rate offered on similar FDs of 5 years maturity. However, some banks do have slightly different interest rates for these special, tax saving FDs. Who offers these FDs? Most public and private banks offer these tax saving FDs. Some of the banks are:

State Bank of India (SBI) ICICI Bank HDFC Bank IDBI Ltd. Canara Bank Allahabad Bank Union Bank of India (UBI) Syndicate Bank