Fix Deposit

Fixed Deposits



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Fixed Deposit Meaning:

In deposit terminology, the term Fixed Deposit refers to a savings account or certificate of deposit that pays a fixed rate of interest until a given maturity date. Funds placed in a Fixed Deposit usually cannot be withdrawn prior to maturity or they can perhaps only be withdrawn with advanced notice and/or by having a penalty assessed.

Fixed Deposit Example:

For example, a Fixed Deposit will often be used by individuals, businesses and financial institutions around the world as a means of storing their liquid funds for a fixed period of time for future use. In the retail market, Fixed Deposits are relatively safe investments when provided by insured financial institutions such as banks, savings and loan corporations and credit unions that are duly regulated within the country in which they operate. Also, while the term Fixed Deposit is in common usage in India and some other countries, Fixed Deposits are also known as term deposits in countries like Australia, Canada and New Zealand, as time deposits in the United States and as bonds in Great Britain.

*An Interesting Story about Fixed Deposits-:
Thirty-three-year-old Ms.Sanika Dhumal, an executive at a financial services firm, had some surplus funds to invest on which she wanted reasonable returns. The advice she received from family members is that she should invest them in a fixed deposit scheme of a company where the yields were more and not a bank.The number of people like Ms. Sanika  is growing with companies such as Shriram Transport Finance, Mahindra and Mahindra Financial Services and Dewan Housing Finance offering 200-300 basis points more than what banks provide for three- or five-year deposits. Company deposit applicants have trebled.  "The intent was to look for higher returns. I was advised to invest money in these company fixed deposits," says Ms. Sanika, who is comfortable with the 12.5% that she is getting from the company FD. "It was mainly the interest factor that got me to invest in company FDs. I was looking for higher
returns and a strong background of the company." Company fixed deposits that used to be a rage in the late 90s lost their charm as businesses begin to access funds easily from the banking system. Also, instances of fraud forced regulators to come up with tough guidelines and link it to their net worth. But high inflation in negative real returns from bank deposits are making company deposits attractive again. So much is the attraction that when investors are pulling out funds from mutual funds, and bank deposits are growing at near-decade lows,the number of depositors for Mahindra Finance rose 60% year-on-year to 200,000 depositors. HDFCs deposits grew 37% to 49,763 crore in December 2012, from 36,293 crore a year earlier. Dewan Housing Finances deposits nearly doubled to 1,900 crore in March, from 760 crore a year earlier. This is in contrast to banks where deposits grew 15% y-o-y. "The interest for good corporate FDs has increased," said V Ravi, CFO, and Mahindra Finance. "We get 400-450 forms every day from 100-150 last year. There are three factors why these are popular - stable avenue of income, safety of the investment due to the high reputation of the corporate and the interest rate arbitrage that has come down in debt schemes, owing to revision in dividend distribution for mutual funds," he added. Best-rated fixed deposits from Mahindra and Mahindra Finance offer 12.2% per annum and fixed deposits issued by Jaypee Group offer rates as high as 15.07% on a three-year FD on a cumulative basis. Against this, banks such as SBI offer 8.75% deposits of similar tenors and private banks like HDFC Bank are offering anywhere between 8% and 8.75%. Shriram Transport Finance FDs offer up to 11.94%, while Dewan Housing Finance offers 11.98% on an annualized basis for three-year deposits.
"In terms of rates, they are far more attractive than bank FDs. The plain vanilla blue-chip (company) FDs are not very attractive, but the ones offered by the real estate companies are being taken up by investors who have enough risk appetite," said Maneesh Kumar, MD, Burgeon Wealth Advisors.
But experts say that the biggest risks investors run are that of lack of liquidity. Big Switch Corp FDs offer 200-300 bps more than what banks provide for 3-year deposits M&M Fin offers 12.2%/year FDs issued by Jaypee offer 15.07% on a 3-year FD on a cumulative basis Shriram Transport.

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