• Insurance
  • Mutual Funds
  • investments


Fixed Deposits

Fixed deposits are a high-interest yielding Term deposit and offered by banks in India. The most popular form of Term deposits are Fixed Deposits, while other forms of term Deposits are Recurring Deposit and Fixed Deposits.

To compensate for the low liquidity, FDs offer higher rates of interest than saving accounts. The longest permissible term for FDs is 10 years. Generally, the longer the term of deposit, higher is the rate of interest but a bank may offer lower rate of interest for a longer period if it expects interest rates, at which the Central Bank of a nation lends to banks ("repo rates"), will dip in the future.

Usually in India the interest on FDs is paid monthly / quarterly / half yearly or annually as per the requirement of the Customer. The interest is credited to the customers' Savings bank account or sent to them by cheque. This is a Simple FD.The customer may choose to have the interest reinvested in the FD account. In this case, the deposit is called the Cumulative FD or compound interest FD. For such deposits, the interest is paid with the invested amount on maturity of the deposit at the end of the term.

Although banks can refuse to repay FDs before the expiry of the deposit, they generally don't. This is known as a premature withdrawal. In such cases, interest is paid at the rate applicable at the time of withdrawal.

Banks issue a separate receipt for every FD because each deposit is treated as a distinct contract. This receipt is known as the Fixed Deposit Receipt (FDR) that has to be surrendered to the bank at the time of renewal or encashment.

Many banks offer the facility of automatic renewal of FDs where the customers do give new instructions for the matured deposit. On the date of maturity, such deposits are renewed for a similar term as that of the original deposit at the rate prevailing on the date of renewal.

Income Tax regulations require that FD maturity proceeds exceeding Rs. 20,000 not to be paid in cash. Repayment of such and larger deposits has to be either by "A/c payee" crossed cheque in the name of the customer or by credit to the savings bank a/c or current a/c of the customer.

Non-Banking Financial Companies (NBFCs)

Non-Banking Financial Companies (NBFCs) are fast emerging as an important segment of Indian financial system. It is a heterogeneous group of institutions (other than commercial and co-operative banks) performing financial intermediation in a variety of ways, like accepting deposits, making loans and advances, leasing, hire purchase, etc.

They raise funds from the public, directly or indirectly, and lend them to ultimate spenders. They advance loans to the various wholesale and retail traders, small-scale industries and self-employed persons. Thus, they have broadened and diversified the range of products and services offered by a financial sector. Gradually, they are being recognized as complementary to the banking sector due to their customer-oriented services; simplified procedures; attractive rates of return on deposits; flexibility and timeliness in meeting the credit needs of specified sectors; etc.

The working and operations of NBFCs are regulated by the Reserve Bank of India (RBI) within the framework of the Reserve Bank of India Act, 1934 (Chapter III B) and the directions issued by it under the Act. As per the RBI Act, a ‘non-banking financial company’ is defined as:- (i) a financial institution which is a company; (ii) a non banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner; (iii) such other non-banking institution or class of such institutions, as the bank may, with the previous approval of the Central Government and by notification in the Official Gazette, Under the Act, it is mandatory for a NBFC to get itself registered with the RBI as a deposit taking company.

Some of the important regulations relating to acceptance of deposits by the NBFCs are:-

  • They are allowed to accept/renew public deposits for a minimum period of 12 months and maximum period of 60 months.
  • They cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time.
  • The other terms and conditions of investments accepted by NBFCs are similar to that of Banking Institutions.