With a rise in the rate of interest and the unstable stock markets, this is the right time for financial institutions to advertise the safest investment option of all times: Fixed deposit. Fixed deposits are a onetime investment option where you will devote all your funds at a single time. But due to the lack of knowledge, there are a lot of misconceptions when it comes to fixed deposits.
Here are some of the common misconceptions when it comes to fixed deposits:
- No one apart from banks offers FD.
Truth: There are a lot of financial institutions and companies that offer fixed deposits scheme for investors. Companies who provide fixed deposits are overseen by proper procedures under section 58A of the companies act. If you choose to have a company fixed deposit, you will be offered a higher rate of interest than the bank deposits. The company FDs are believed to be an unsecured option as opposed to the bank deposits.
- More interest payments, more returns.
Truth: A fixed deposit which gives you returns only when it matures will give you more returns comparatively. You have the option to choose between receiving the interest payouts at regular intervals or cumulative deposits where you receive the entire amount only when it matures.
- 5-year deposits mean tax benefits.
Truth: Only selected 5 years fixed deposit give you tax benefits. If you invest in select fixed deposits of 5-year tenure, you will get a tax exemption of up to INR 1 lakh under section 80C. This type of fixed deposit must be from a bank and you cannot access it for the entire tenure. You will need to mention tax benefit under section 80C on the fixed deposit certificate.
- You cannot evade TDS on FD.
Truth: If you provide the bank with the required documents, you can avoid TDS. TDS on a fixed deposit is removed if the interest in the given financial year exceeds INR 10,000 in the case of bank deposits and INR 5,000 in the case of company deposits.
- You do not need to declare your FD interest in tax returns.
Truth: you need to declare the interest that you received on your fixed deposits in the annual tax returns. The interest that you earn from your fixed deposit should be included in your tax returns under “Income from other sources.”
- Premature withdrawal is the only option.
Truth: In the case of emergencies if you need money from your fixed deposits, then financial institutions propose a part withdrawal of the money, where you can withdraw only the amount that is required. The remaining funds in your fixed deposit will keep providing you with interest. It is wise to remember that not all fixed deposits provide you with this option.
- Fixed deposit gives better returns than the stock market.
Truth: The total returns that you get from a fixed deposit are comparatively lesser than the returns you get from the stock market. This is because fixed deposits are affected by inflation. But it is always wise to do a proper research before you invest your money.