Fixed Deposit (FD) has been investor’s evergreen and forever favourite investment plans. Being secure, Fixed Deposits also offer steady returns. Therefore the investment scheme is more preferred amongst the citizens. Many organisations also offer higher FD interest rates for senior citizen above the age of 60. There are various sub-categories like cumulative, non-cumulative FDs, short term FDs and flexi FDs. In order to choose the most suitable scheme, it is important for the investor to understand the difference between these plans and which plan to opt for.
Cumulative Fixed Deposits
Cumulative Fixed deposits are the fixed deposit schemes where the interest earned on the invested money is reinvested in the capital sum. And the total capital gain is obtained at the end of the plan-maturity period.
Non-Cumulative Fixed Deposits
Non-cumulative fixed deposits are the FD plans where the interest rate gained on the invested capital is paid-out to the customer on a monthly basis. This scheme is often preferred by small investors or senior citizens who can make the use of monthly earned money.
Short-Term Fixed Deposits
As the name suggests short term fixed deposits involve the investment for shorter maturity period. These types of investments also have smaller benefits on the investments.
Features of a Short-Term Fixed Deposit Scheme
- Just like any other fixed deposit scheme, the scheme has a maturity period which the investor chooses. However, this maturity period is comparatively shorter.
- Many organisations have a limit on the amount that is to be deposited for investment, which varies from institute to institute.
- Extremely safe investment method with uniform interest rates and assured returns
Benefits of A Short- Term Fixed Deposit Scheme
Ideal investment scheme for investors who want to have transitory savings.The scheme offers greater liquidity and higher returns. The investor can take a loan against their investments as well. Short term fixed deposits are considered secure by the government as well. Capital invested in short term deposits can also be used as margin for non-fund-based services.
Flexi Fixed Deposits
Flexi fixed deposits are special type FD schemes; the plan is a combination of a demand deposit and fixed deposit. The investor can enjoy both liquidity and savings facilities along with the benefits of a current account and assured higher returns on the invested capital.
Features of Flexible Fixed Deposits Schemes
- The scheme is a combination of fixed deposit and recurring account and offers the benefits of both the accounts.
- Flexi fixed deposit schemes offer attractive FD Interest rates as compared to a savings account.
- An investor can invest higher capital in flexible FD schemes.
- Unlike short term FDs, the tenor period for flexi FDs is also higher
Benefits and Drawbacks of Flexible Fixed Deposits
Unlike traditional FD schemes, the customer can invest the capital during the maturity period as well. The process is known as a sweep in.Just like a recurring account, the customer can sweep out the excess amount from the scheme as well. The process is known as a reverse sweep. The basic theme of flexible fixed deposit scheme is to link the savings and recurring accounts, and hence when an investor withdraws the fund; there are chances that the flexible FD too will be liquidated due to which the investor may lose all the earned interest. And hence the flexi FD scheme need a lot of proper monitoring.
Which Plan to Choose?
Choosing the right plan for investment is very subjective matter; requirements of investors also vary. And hence it is always suggested to opt for a plan that best suits the requirements, available balance on hand, the time for which the investor has the cash on hand, etc. are some of the factors that one must consider. For a person who is new into investments, can start off by making short term deposits and then move to a longer period. Short term fixed deposits are also useful for people who have the money available for a shorter period of time. flexible fixed deposits along with carrying the benefits of both a saving and recurring deposit also carry basic criteria that must be met, and hence for people who are not sure if they will need to withdraw the money or not can opt for the flexible FD scheme.