7 Common Misconceptions about Fixed Deposit (FD)

Fixed Deposit investment schemes also termed as Time Deposit are one of the favourite investment options in India. An investor who wants to take lower risks on their investments and still want to earn higher mostly opt for this investment scheme. But when it comes to Fixed Deposits, there are a lot of misconceptions. Some of these myths are:

Myth 1: The Biggest Objective of Buying an FD Scheme Is Tax-Saving

There are a lot of people who buy investment plans to save their money on tax. But investment schemes are not just limited to tax savings. Schemes like Fixed Deposits are offered so that investors can make use of the parked money.

Along with offering security Fixed Deposit schemes also offer assured returns. So that customers can earn in their invested capital, hence tax saving is not the only objective of any Fixed Deposit scheme. Along with offering secure FD schemes these companies also offer the facility for their customer to access and manage their account online.

Myth 2: Only Banks Offer Fixed Deposit Plans

Often people think that banks are the only institute; they can consult for FD schemes. But this is also another myth. Various Non-Banking Finance companies also offer FD schemes. It has been observed that NBFCs like Bajaj Finance has been offering the highest interest rate. These companies work on proper regulations and guidance provided by Reserve Bank of India and under 58A section in the Indian constitution.

Myth 3: Tax Deduction Is Mandatory on Fixed Deposits

The capital earned as interest on Fixed Deposit is taxable, but it is not mandatory. As returns on the Fixed Deposits are included in the individual capital income under ‘income from other sources’ and the amount earned from these investment schemes is taxable. But not everyone has to pay the tax on the gains. Investors who gain below 15,000 on their investment schemes are exempted from the taxation. Investors like senior citizens and minors who are living on zero taxable income or no income can avoid the TDS on their capital gain. Additionally, for the investors who have an annual income of less than five lakhs can also submit 15g and 15h forms to their respective organisation to avoid deductions on their earnings.

Myth 4: what is Time Deposit? Time Deposits and Fixed Deposits are the same things.

There is not much of difference between a Term Deposit and Fixed Deposits, but eventually, both the schemes are different. The prominent difference is that Term Deposits are mostly used for company deposits while Fixed Deposits are more used for bank deposits.

Myth 5: It Is Not Important to Include the Capital Gain from Investment in The Annual Tax Returns.

This statement is another myth that people have since long. People believe that it is not necessary to mention the gains from investments in their Annual Tax Returns. But it is not true, as discussed above under ‘income from other sources’ it is important to mention the income from various investment schemes.

Myth 6: Premature Withdrawal Is the Only Option, In the Time of Financial Emergency.

This has to be one of the most prevailing myths about Fixed Deposit schemes. Earlier liquidating the fund was the only option for investors when there was any financial crisis. But this is no more a problem now. Many banks and NBFCs are now offering the option of partial withdrawal for their customers, where the investor can withdraw only the required amount and continue to gain interest on the remaining amount.

Myth 7: In Longer Terms FDs Offer Higher Returns as Compared to Other Mutual or Debt Fund Schemes.

Bonds, shares or other plans are debt fund-based investment plans while Fixed Deposit is savings investment plans. Both the plans are different and offer varied returns. Mutual funds involve higher risks and demand appropriate monitoring but also offer higher returns which are not always uniform while fixed deposits are steady, secure plans. FD involves less risk and also offer assured returns.

Investments and personal financial planning are essential for one to live a hassle-free and stress-free life. When it comes to Fixed Deposits, they are one of the most preferred investment plans. But there are a lot of misconceptions about investments. Investors are always suggested to do proper research before making any investments.