If you are looking at improving your returns from fixed deposits, there are many ways to do so. It is important to remember that returns from Fds have fallen in the last few quarters and therefore you must do your utmost to improve the yields. Here are 5 smart ways you can improve returns.
1. Do not restrict yourself to bank Fds only
It is important to remember that you need to look beyond bank Fds. For example, State Bank of India fixed deposits offer you a maximum interest rate of 6.5 per cent. You get NBFC Fixed deposits that could offer you interest rates that are as high as 9 per cent. Until recently, the deposits offered by Mahindra Finance were offering you 9 per cent for an online application.
Bajaj Finance offers you currently an interest rate of 8.35 per cent. Go for these fixed deposits, but, only if they are AAA rated. It's important to remember that company Fds can be risky. You need to be a little more cautious.
2. Submit form 15g and 15h
If your income is below the threshold taxable limit as prescribed, it would be advisable to submit form 15g and form 15h as the case would be. This is because otherwise there would be a TDS applicable if your interest income exceeds the threshold of Rs 10,000.
In the case of company deposits, a TDS is applicable if the interest income crosses the limit of Rs 5,000. However, it is important to remember that you should not submit the forms, if you are already paying taxes.
3. Look for yields and not interest rates
It is also important to remember that you should not look at interest rates, but yields. Many companies offer you interest rates that are high, but, the compounding is done every year. Banks offer you an interest rate, where the compounding is done every quarter, so your yields are high. Let us explain this with an example.
Say you invested a sum of Rs 1 lakh for 1 year at 10% on Jan 1, 2019. On April 1, 2019, the interest on this would be Rs 2,500. So, what would happen is that you would start attracting 10% interest on 1,02,500, since your interest is being compounded every quarter. In other words, interest is added to principal amount and than applicable interest rate is calculated.
4. Invest in the name of your spouse
If your income is already being taxed, it makes sense to invest in the name of your spouse, in case she is not paying any taxes.
This way you can split the income.
5. Do a little research online
It is also important to do a little research online, before you invest. While there would be many advisors who suggest different types of fixed yielding instruments, you need to stick to some research. Invest in instruments that you understand and are familiar with. For some reason if the instrument is risky, it would be advisable to avoid the same. Do exercise some caution before you invest.