Definition of Fixed deposits
Fixed deposits as the name suggests is an amount deposited in bank for a fixed amount of time for which the investor earns an interest or profit. The return rate normally is fixed in this case.
Brief Explanation of Fixed deposits
The return of fixed deposits are really high but they have fixed maturity dates.
- These are considered to be one of the safest investments.
- They are not very liquid and hence to balance the benefit they offer high return upon maturity.
- The longest time of any fixed deposit is 10 years.
- The longer the terms of the deposit, the higher the return.
- It can be withdrawn before maturity date. This is commonly known as premature withdrawal.
- It can be renewed.
- Loan can be taken against Fixed deposited amount.
- As the return rate is fixed in this type of investment, the investor normally knows how much he is going to receive in future.
- Interest and profit on fixed deposits are taxable in nature.
- They are normally deducted at source.
- There is a limit which if crossed the tax becomes applicable.
The disadvantages of fixed deposit may include:
- Slow in return and maturity.
- This is a risk free investment hence low return as compared to other investments. Low risk low return theory.
- The money gets locked for a period of time hence not very flexible investment.