Fixed Deposits

Context

The Reserve Bank of India (RBI) recently announced that it will keep the repo rate unchanged for the tenth consecutive time, which is a significant indicator in the context of India's monetary policy. This decision is interpreted as a sign that the RBI may be nearing the peak of its interest rate cycle, which directly affects the returns on various financial instruments, including fixed deposits (FDs).

What Are Fixed Deposits?

Fixed deposits are a type of investment offered by banks and financial institutions where an individual deposits a lump sum amount for a fixed tenure at a predetermined interest rate.
They are considered one of the safest investment options due to their fixed returns and are popular among conservative investors.
Key Features of Fixed Deposits:
- Safety: FDs are low-risk investments, often insured up to a certain limit by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
- Fixed Returns: The interest rate is agreed upon at the time of deposit and remains constant throughout the tenure.
- Tenure Flexibility: Investors can choose tenures ranging from a few months to several years.
- Liquidity: While FDs are generally less liquid than savings accounts, premature withdrawal is possible, though it may incur penalties.
- Taxation: Interest earned on FDs is subject to tax as per the investor's income tax slab.

Fact Box: Important Financial Instruments

Equities (Stocks) are shares of publicly listed companies that represent ownership in the company. Investors can buy and sell these shares on stock exchanges like the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
- Risk Level: High risk, as stock prices can be highly volatile.
- Investment Horizon: Long-term, as equities generally yield higher returns over extended periods.
Mutual Funds are investment vehicles that pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. Managed by professional fund managers.
- Risk Level: Varies by type (equity, debt, hybrid), but typically moderate.
- Investment Horizon: Short to long-term, depending on the fund's objective.
Public Provident Fund (PPF) is a government-backed savings scheme offering tax benefits and a fixed interest rate. The investment is locked in for 15 years, with partial withdrawals allowed after a certain period.
- Risk Level: Low risk, as it is backed by the government.
- Investment Horizon: 15 years, with the possibility of extension.
National Pension System (NPS) is a retirement savings scheme that allows individuals to invest in a pension fund managed by professional fund managers. It includes various investment options, including equity and fixed income.
- Risk Level: Varies based on the chosen asset allocation.
- Investment Horizon: Long-term, until retirement.
Fixed Deposit (FD) is savings account offered by banks where money is deposited for a fixed tenure at a predetermined interest rate. FDs provide guaranteed returns.
- Risk Level: Low risk, as they are insured up to a certain limit by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
- Investment Horizon: Short to long-term, typically from 7 days to 10 years.
Recurring Deposit (RD) is savings scheme where individuals deposit a fixed amount monthly for a specified tenure. It encourages regular saving habits.
- Risk Level: Low risk, similar to fixed deposits.
- Investment Horizon: Varies based on the chosen tenure, typically from 6 months to 10 years.
Bonds: Debt securities issued by corporations, municipalities, or the government to raise funds. Investors receive periodic interest payments and the principal amount at maturity.
- Risk Level: Generally lower than stocks, but depends on the issuer's creditworthiness.
- Investment Horizon: Medium to long-term, depending on the bond's maturity.
Exchange-Traded Funds (ETFs): Investment funds that track a specific index and trade on stock exchanges like individual stocks. They offer diversification and lower expense ratios compared to mutual funds.
- Risk Level: Varies based on underlying assets; generally moderate.
- Investment Horizon: Short to long-term.

China, India and New Delhi’s Quad dilemma

International Relations International Organization

Scuttling people’s right to information