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What kind of institutions offer FDs? Do they all have the same risk level?

By Finserv MARKETS - Oct 15,2019
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What kind of institutions offer FDs? Do they all have the same risk level?

During her first tax season, Bharathi found herself going through the forms with a rough calculation of how much she would be missing with the lack of investment declared. While the property was a heavy hit on the wallet, there was an option that circulated in her circles of advice, to try a fixed deposit.

Fixed Deposit (FD) is an investment meant for longer-term security and assured returns. It’s an age-old recommendation to ensure a hefty payback in the future. However, it comes with its own set of questions and considerations. While a recurring deposit (RD) is more common for those who aim for flexibility in withdrawal, an FD has a higher interest rate to compensate for the more rigid tenure. With that in mind though, it is important to choose the right place to register an FD to cater to the specific objective in mind for your investment.


The common option for most people would be a bank. While the choice can be between a public or private sector bank, it is helpful to remember that public sector banks have a higher return policy than their private counterparts. The return rate averages at 7% depending on the tenure of the deposit issued when you choose a bank for investment, and the credit rating isn’t as steep as its alternatives. However, the fear of the sluggish drop in deposit rates as proven through evidence in nationalized banks has raised doubts in the current fiscal year. Since deposits are connected to the bank’s capacity to lend loans, a lowering in deposit rates becomes good news for those seeking to borrow money. While this isn’t helpful to those depositing the money, a strategic reassessment of an intended FD can save gains. It is important to show a distinction between cooperative banks and public or private sector banks, especially with their significantly different interest rates. Since FD isn’t tax exempted and only tax-adjusted, it is relevant to choose between investing a higher amount as a single deposit and splitting it into multiple deposits.

Non-Bank Financial Company (NBFC)

With the growing need for customized options, growth among NBFCs has increased over the years too. While the interest rate is higher than that of banks, an average of 8.5% is consistent, the risks of reputation and credibility increase with these options. It becomes essential then, to verify the credit score of the companies before considering investment, taking the help of establishments such as CRISIL to guide best on the trust gained by the NBFC. There is a higher dependence on capital market’s change and volatile nature with the funding of NBFCs, and this diverts them to approach retail deposits for more stable sources. In terms of risk factors, an ill-timed investment or a miscalculated inflation would affect these companies more than banks. However, the lure of a significantly higher interest income is undeniable and can turn the pot. For instance, on Finserv MARKETS you can find a range of options, with high fd interest rates, at simple, convenient processes and minimal documentation.

Post Office

It’s easy to glance past the less commercial options but the option of investing in a timed deposit or FD at the post office isn’t as outdated as it would be made out to be. Better known as the Post Office Time Deposit (POTD), these schemes are reviewed quarterly for their interest rates and qualify under tax benefits if made for a five-year tenure. Estimated at 6.5% rate of interest in the current time for a year’s tenure, the POTD has a minimum amount deposit of Rs. 200 and does not have an upper limit of investment. This makes it an open choice for those seeking a government-backed firm that provides them with investment opportunities at a lower amount. The risk factors reduce with the guarantee given by the government but it is important to note that the final amount returned with interest will remain taxable.

Common risk factors

While every option has its own risks, there are a few essentials to be noted as a common thread. The most prominent among them is a concern about interest rate risks. A higher amount attracts a more sought after interest rate but with it comes the rate risk that is dependent on a multitude of factors and most of them fluctuating with the market. A resolution to this would involve layering fixed deposits into different amounts with varying tenures that don’t attract the same value. Another common fear is of credibility and this is fuelled by both the market value and the accountability of the firm chosen. To counter this, it is essential to weigh the credit rating and current news environment of a firm before approaching its schemes. The FD options available on Finserv MARKETS come with a stable ICRA MAAA and CRISIL FAAA rating.

While fixed deposits are both a good investment plan along with a tax-adjustment offer, they are better suited as an accompaniment to other investments to increase value and profit. On Finserv MARKETS, you can take your pick of the fixed deposit options available, with schemes ranging between 1 to 5 years with high interest rates and pair them with any other popular market instruments on Finserv MARKETS, like Mutual Funds or ULIPs.

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