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A Fixed Deposit (FD) is a financial instrument provided by banks or NBFCs which provides investors a higher rate of interest than a regular savings account, until the given maturity date. Individuals who opt to invest in fixed deposits will have to choose a tenure, which usually ranges from 7 days to 10 years and must deposit an amount once. The interest on the amount will be credited to the investor’s account on a monthly or a quarterly basis.
Recurring Deposit is a special kind of Term Deposit offered by banks in India which help people with regular incomes to deposit a fixed amount every month into their Recurring Deposit account and earn interest at the rate applicable to Fixed Deposits Individuals who opt to invest in recurring deposits will have to choose a tenure, which usually ranges from 1 year to 10 years depending on your bank or financial institution.
Fixed Deposits (FD) and Recurring Deposits (RD) are conventionally preferred investment options in India for those who opt for low-risk investment, the risk-averse people. Almost all the banks and non-banking financial services companies offer the facility of fixed deposits (FD) and recurring deposits (RD) with various features, tenures, interest rates and investment limits. According to experts, if an individual is not willing to take the risk on the money, then fixed deposits (FD) and recurring deposits (RD) can fulfil the purpose of both savings and multiplication of wealth at the same time.
Fixed Deposits (FD) and recurring deposits (RD) are still been considered by more number of people as relatively compared to the other investment options such as mutual fund SIP, public provident fund (PPF) and national savings certificates (NSC) and others. Based on the prescribed features of fixed deposits (FD) and recurring deposits (RD), the choices among these two investment options varies upon requirements, availability of funds. Fixed deposits and recurring deposits can be differentiated on the basis of several factors such as interest rate, investment tenure and investment limit.
Both FD and RD are fixed income products available from banks. On the invested amount banks pay you a fixed interest which can be at a specific frequency till the term or on maturity. At the end of the term, the maturity amount which is your invested capital, along with remaining or accumulated interest is paid. Although the interest of banking products change with interest rates scenario, in both these products once you have invested the interest rate remains same throughout the term. In recent times the high rising rates have prompted banks to offer high interest rates on these two instruments and so the attraction of investors has increased manifold.
Both these products have the same taxability. The interest received from these two is is added to your total income and taxed at your personal income tax rate. So if you are in 30% tax slab, the interest from FD & RD will be taxed at the same rate. However, there is a difference in the nature of tax deduction. In a fixed deposit, banks deduct TDS if the interest income in a year exceeds Rs 40000 but there is no TDS deduction in recurring deposit. This one feature sways investors’ interest towards RD when there is a comparison.
The interest rate offered on recurring deposits is generally lower than that offered on fixed deposits. In most fixed deposits and recurring deposits, the interest is compounded on a monthly basis while some on fixed deposits; the interest is compounded on a quarterly basis.
For both RD and FD, the process to get maturity amount is similar. At the end of the tenure, the bank itself deposits the total sum in your linked saving/current/overdraft account.
Conclusively, fixed deposits (FD) can be better for those individuals who are having a lump sum amount readily available to invest while people with regular income stream can opt for recurring deposits (RD).
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