Friends, whenever there is a little money in your bank account, what do you do?
If you don't invest that money in equity or mutual fund
Then maybe you make an FD of that money
Which we also call Fixed Deposit
And a lot of investors like you and I
Without thinking make an FD somewhere
Only thinking that I want to park that money somewhere
Here, investors like you and I make a very big mistake
That we only consider an FD as a parking space for our money
We don't consider FD an investment option
Today in this video we will talk about
How you can make FD an investment option
And what are the things you have to keep in mind which will help you choose a very good FD
Which in the coming time can give you very good returns
I, Jagdeep Singh, welcome you to the Groww channel
Let us start today's video
On Fixed Deposit
I will start this video with a very interesting fact
A wealth report of Karvy had come out in 2019
In which they said that India's individual wealth
Will increase by 2024 and become 799 lakh crores
Which means from 2019, until 2024
It will increase by a 13.7% CAGR
Apart from this if I tell you another interesting fact
That if you invest Rs 100 in India
Then currently, a Rs 60 investment
Is made in financial assets
Financial assets like equity, mutual funds, FD
There are a lot of assets like this
And just a Rs 40 investment
Is made in non financial assets till now, which we also call physical assets
But according to this report
In 2024,
This 60% number will increase to become 66%
So here in the case of financial assets
Now also there is going be good growth in the coming few years
If I talk about FD which we also call Fixed Deposit
Until now, in 2019 there are 46 lakh crore worth of investments here
And in the overall financial assets this gives a 17.5% contribution
Now I will talk about those 5 points
Which if you pay attention to them, you can choose a good FD
Which in the coming time can give you a good return
The first point
And a very common point for retail investors like you and I
Which is of interest rate
Whenever we make an FD in a bank, we first see what the interest rate is
And if I talk about interest rate
Then it varies a lot from one bank to another
In some bank we get a 6% interest rate
In some places we get 7%
And in some places we also get an interest rate of 8-8.5%
And here if I talk about senior citizens
Then normally senior citizens get a 0.5-1% extra interest rate
If I talk about some big banks like HDFC bank, ICICI bank
PNB, SBI and apart from that Kotak Mahindra bank
Then big banks on a one year FD normally give you a return between 6-7%
Which we also call interest rate
But nowadays there are new categories of banks
Which normally give us a little more returns on FDs
Like small finance bank
Small finance banks normally give you more returns on FDs as compared to big banks
Because the portfolios of small finance banks is very diversified
And the loans they give, it to the people of low income range
Because of which they charge a very high interest rate
And there, they are able to charge a high interest rate
And that is why they give you a high interest rate on your FD
And apart from that, the small finance banks are now in an expansion mode
And nowadays are thinking of acquiring a lot of customers
Because of which they give you a slightly higher interest rate
If I tell you about some small finance banks that give you around 8% interest rate
Like DCB bank, Ujjivan small finance bank
Apart from these, there are a lot of small finance banks that give you a slightly higher return
As compared to other banks
Apart from this also there are certain companies which we call NBFC
Which can give you a slightly higher interest rate
But the small risk of investing in NBFC is that there, your default risk slightly increases
Like we have seen in the history of independent India
That no bank has defaulted until now
So there your security is a lot
So where you have a lower risk, then your interest rate is also slightly lower
And as you start to take higher risks
You get a higher interest rate
So if you don't think that you should take a higher risk in the case of FD
Then you should not think much about investing in NBFC
And you should invest more in the case of normal banks
And if you want a higher return
Then you can invest in small finance banks
Because there the risk is not as much as in the case of NBFC
And it is not as less as in the case of big banks
The second factor that you should look at while investing in an FD, is the tenure of the FD
For how long are you thinking of investing
Like you can invest in an FD for one month
You can invest for 5 years, and ten years also
And the tenure is inter-linked with your interest rate
Because as your tenure increases
The bank gives you a higher interest rate
If on a one year FD you only get a 7% interest rate
In that way on a three year FD you can get a 7.5% interest rate
There if I talk about a ten year FD
There, your interest rate in some banks can go until 8.5%
So the first thing you have to see is
What is the time and tenure that you want to make your FD for
According to that you have to choose which bank is giving you a good interest rate
And when both of these things match then you should think about making an FD in that bank
The third factor is of compounding
The the FD you have invested in, how does it do compounding?
Like I told you in on video, the link of which I have given in the description
How important compounding is when you have to grow your money
Like if I give you a small example
That in the case of simple interest if you invested 100 Rs
And you have a 10% return
Then after one year you will get Rs 10 return
And even the next year you will get a Rs 10 return
But here if I talk about compounding interest
And in the first year you make an investment of Rs 100
And the compounding interest you get is 10% per annum
Then your return in the first year was Rs 10
And the return you get in the second year won't be on Rs100
But it will be on Rs 110
Because of that you return in the second year will increase from Rs 10 and become Rs 11
So before making an FD you should see how frequently your bank gives you compounding
If a bank gives you a compounding return quarterly, which means
After 4 months you will get your compounded return
And after 4 months you will start getting interest on that interest
And some banks gives you compounding quarterly
Some banks gives you compounding half yearly
And some banks gives you compounding annually
So here it is very important
You have to compare your compounding period with your interest rate
If I give you a small exmple, that some bank told you
That in our bank you will get an 8% return
But we will compound annually
But another bank told you, that we will
We will give you a 7.5% interest rate
But we will compound quarterly, then the second option will be more beneficial
If you're thinking about investing for a longer horizon
So here it is very important for you to interlink these three things and look at it
First you have to see the interest rate
You have to see the tenure and you have to see the compounding
And paying attention to these three things you should decide where to make the FD
How much return can you get in the FD
And when you look at these things at once, then you will be able to figure where you can get higher returns
Now let us talk about the fourth point
And the fourth point is related to flexibility
How flexible is that place where you're planning on opening an FD. Now what does flexibility mean?
The first thing that comes under flexibility is what is the minimum amount you have to keep in an FD
Because some banks say that the minimum amount is Rs 5000
And some banks say that the minimum amount should be Rs 50,000
So you should see according to you which FD is most flexible for you
Which FD is right according to your amount
And the second and very important part of flexibility is
Premature withdrawal
How fast you can remove your money from there
Because it is possible that at once you have made an FD for five years
But in between in one or two years an emergency can come up
That you have to break your FD and remove your money from there
And a lot of banks here charge you a certain amount of penalty
The penalty can vary from 0.5-1%
So you should pay a lot of attention here that you have made an FD at a place where the penalty is 1%
So in between if you withdraw prematurely
Then it is possible that your return is impacted a lot and that return can be impacted even by 1%
So now wherever you think of making an FD
You should look at 4 things
First, the return you get there
Second, what its tenure is
Third, what the compounding is and fourth flexibility
And in flexibility it is very important that you should see
What its premature conditions are
How much penalty they charge
After that only you should decide where you should make your FD
And in flexibility I will tell you another very important thing
That a lot of times it can happen that you have made an FD for five or ten years and in between you need a little money
I will give you an example that consider you have made an FD of 10 lakhs for 10 years
And after two or three years you need 1 lakh rupees
So here it is very difficult for you to break the entire FD
So here if you get this flexibility option
That against that FD you can get a small loan
That can fulfil your short-term requirement and you don't have to break the FD
So we call this loan against FD
So a lot of banks give you an option to take loan against your FD
With which you can fulfil your requirements
And you won't have to break your overall FD
So here you get two benefits
First, your short term requirement is complete
And the long term return that you're going to get from the FD
That also doesn't get spoiled
So under flexibility you should also see whether that bank gives you loan against FD or not
So there if you have the option of loan against FD available
Then you can give that preference
Now I will talk about the fifth point which is an extremely important point that we sometimes miss
What are the taxes we have to pay when we invest in FD
So here there are two points, first what is the tax you have to pay
And second, by investing in FD what are the taxes you can save
So, like I always tell you
That if you invest anywhere under ATC then you can reduce your taxable amount
So if you invest in an FD and there you get a five year lock in
Then you can do your tax deduction under ATC
So if you're planning on making an FD somewhere
And if you haven't made an investment under ATC
Then you can take advantage of that in FD
So if you think about investing anywhere in the coming time
And if you haven't take tax deduction under ATC
Then you should take the benefit of that and you should go and see whether that facility is available or not
Now I will come to the second part of tax
That if I earn an interest on an FD then how much tax do I have to pay
So on an FD the tax you pay is according to your tax bracket
And a lot of times these banks cut this tax in the form of TDS
Which means tax deduction happens at the source
Now I will explain to you with a simple example how much tax will you have to pay
Now consider that you made an FD
On which, in one year you got 1 lakh rupees interest
So if you come in the 30% tax slab
Then you will have to give Rs 30,000 tax to the government
And there are a lot of chances that it will get cut in your TDS itself
If it is not cut, and more is cut
So when you file for income tax then you can get a refund on that
And if lesser is cut, then you will have to pay it later
So friends, we made this video to tell you how you can choose a good FD
And whenever you invest in an FD
Then don't just understand this as a parking space, understand it as an investment
And very carefully, by paying attention to these five things, choose a good FD
Apart from this, I will give you a very good bonus tip while investing in an FD
You must have heard the term inflation before
Inflation tells us how much our expenses have increased
And according to that how much the value of our money has decreased
Now consider that the inflation of our country is 4%
And the place where you have invested, there the return is lesser than 4%
Then your actual invested money is going down, not up
So from now if you invest in any FD or any investment option
Then you should keep in mind that the return you are getting
Should at least beat the inflation
If it doesn't beat the inflation
Then that isn't an investment, instead your money is going down
Friends, if you haven't yet subscribed to this channel then please subscribe
Because every week we bring about 2-3 videos on financial knowledge every week
Which can help you become a very good and intelligent investor
So I will end this video with a question for you
Which bank do you think we should make an FD in?
And in which bank have you made an FD in?
And out of these five factors, which is the most important for you
If you liked this video, press that like button and share it with your friends
Because in India we all invest in FDs
And it is very important for us to know
What are the things we should pay attention to while investing in an FD
Happy investing!