You often hear experts opine that your portfolio should be well-diversified with a good mix of fixed income instruments and market linked instruments. While the former are relatively safe with guaranteed rates of return the latter are risky with high earning potential in the long run. Thus, to optimize risks and create wealth you must always hold a balanced portfolio with resources allocated between both types of investments. The proportion of investment in each depends on your financial goals.
The most sought after fixed income instruments in India are the term deposits. Even though, terms deposits are subject to interest rate risks, they are comparatively low risk financial assets. You will earn stable returns from them even during times of high market volatility.
There are mainly two types of term deposits – Fixed Deposits (FD) and Recurring Deposits (RD).
Let us throw light on the differences between the two.
|1||Nature of deposits||A lump sum amount invested for a specified time period at a fixed rate of interest.||A nominal amount invested every month for a specified time period at a predetermined rate of interest.|
|2||Lock-in period||Minimum Tenure – 7daysMaximum Tenure – 120 days||Minimum Tenure – 6 monthsMaximum Tenure – 10 years|
|3||Interest Rate||Higher than that offered on RD||Lower than FD rate|
|4||Interest Pay-out frequency||Monthly/Quarterly/Semi-annual/Annual/Cumulative Interest Payout options available||Only cumulative interest pay-out option available.|
|5||Target investors||Ideal for risk averse investors or those seeking to balance their portfolios with instruments offering stable and reliable returns.||Most suited for low-income individuals who do not have surplus funds at their disposal to make a lump sum investment.|
|6||Loan Against Deposit||Loans can be availed up to 90% of total FD amount.||Loans can be availed up to 90% of total RD amount.|
|7||Investor default on deposit amount payment.||Since FDs require a single bullet payment, investors cannot default on paying the deposit amount.||Since RDs require monthly deposits, investors can default in making the periodic deposit amounts. Banks will resort to auto-closure of RD if investors do not pay installments for six months continuously.|
Both FD and RD can be auto-renewed but cannot be extended beyond 10 years. You can link your saving accounts to the FD/RD account. In case of FD, the principal investment amount will be auto-transferred from your savings account whereas in case of RD, the stipulated installment amount will be debited on a monthly basis from your savings account and credited into your RD account.
Bajaj Finance Term Deposits
Bajaj Finance Limited (BFL), a coveted firm with zero unclaimed deposits and high credit ratings in the Loan & Deposits market, is a great option for term deposits.
Bajaj Finance FD rates are lucrative. It is 6.60% per annum for retail investors. If you open an FD online, you earn 6.70% per annum. For senior citizens, the rate of return is higher at 6.85% per annum. It is much higher than the rate of return on a senior citizen savings account.
While BFL does offer the traditional RD, it has engineered a new variant of RD known as Systematic Deposit Plan (SDP). However, there are subtle differences between the two. While RDs have a fixed interest rate throughout the investment duration, in SDP prevailing interest rates on the date of investment are applied to each monthly installment. You can also choose different tenures for each monthly deposit – a feature absent in RD. Deposit frequencies permitted also differ. Unlike RD/FD, SDP evens out interest rate risks.
Thus, BFL term deposits are recommended for investment.