If you are looking to invest in fixed deposits, we would like to inform you that interest rates at the moment are pretty low. If you get returns of around 6% per cent, consider yourself very fortunate. Many investors are hopeful that interest rates in the economy would increase gradually over the years.
A few instruments with their interest rates
|1-2 years||2-3 years||5 years and above|
|Post office time deposit||5.5%||5.5%||6.8%|
|Public Provident Fund||7.1%|
|Kissan Vikas Patra||6.9%|
|National Savings Certificate||6.8%|
|Senior Citizens Savings Scheme||7.4%|
Here are a few ways you can increase your returns from fixed deposits.
1. Target yields and not interest rates
Let's understand what this means. Post office schemes tend to compound interest rates after a year, while banks compound them every quarter, which means your returns or yields go higher. Let us explain this with an example. Suppose, you invest Rs 1,000 as an example for a year and you earn 10% interest on the same.
What banks would do after the first three months is they would add Rs 25 that you would have earned and calculate interest for the next quarter on sum of Rs 1,025. So, your yields would go higher as the next quarter the interset calculated of 10% would be on Rs 1,025. However, this does not happen in the case of post office schemes, where the interest earned is compounded only after completion of the year, which reduces the yields.
2. Don't stick to bank fixed deposits only
You should also look beyond bank deposits. In fact, company fixed deposits also are a good option. For example, at the moment the fixed deposit of Bajaj Finance gives an interest rate of as much as 6.75% per annum, but, SBI would give you an interest rate of a maximum of 5.5%, that too of tenures of 5 years So, look for various other options including post office time deposits.
Other options for investment also include non convertible debentures and also debt mutual fund schemes.
3. Look for instruments that offer tax benefits
There are two types of tax benefits that you receive. The first is the tax benefits under Sec80C of the Income Tax Act, where the amount invested is deducted from total income upto a maximum sum of Rs 1.5 lakhs. Instruments like PPF, bank tax saving fixed deposit instruments, NSC etc., offer you this benefit.
The other is that the interest earned from the instruments is tax free in the hands of investors. So, you don't have to pay tax on the same. Instruments like PPF, ULIPS and tax free bonds are some of the instruments that fall under this category.
4. Apply online
Some fixed deposits of the non banking finance companies offer you a marginally extra interest rate if you invest online. So, look for these instruments. If you are investing a very large sum of money even a 0.10 or 0.25% higher interest can make a difference.
We suggest that in the case of company fixed deposits look for the strong AAA rated deposits only.