Fixed deposits (FDs) are a popular investment option in India. They offer safety, assured returns, and flexible tenor. One of the lesser-known benefits is the ability to receive monthly income. This can be useful for retirees, homemakers, and those seeking a steady income stream. Here’s how to get monthly income from fixed deposits and the factors to consider.
Understanding Fixed Deposits
A fixed deposit is where you deposit a lump sum amount with a bank or NBFC for a fixed tenor. You earn interest on the deposited amount. The interest rate is usually higher than a regular savings account. This makes it an attractive investment option.
How Fixed Deposit Monthly Interest Works
When you open a fixed deposit, you get the option to choose the frequency of your interest payouts. These options include monthly, quarterly, half-yearly, or yearly payouts. To receive a monthly income, select the monthly interest payout option. Here’s how it works:
- Deposit Amount: You deposit a lump sum amount with the bank or NBFC
- Interest Calculation: The issuer calculates the interest as per the interest rate
- Monthly Payout: The interest earned is credited to your account every month. This can help provide you with a steady income
Steps to Get Monthly Income from Fixed Deposit
It sure sounds easy to invest a lump sum of money, and earn recurring interest. In fact, it is easier to get started. Find out how!
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Choose the Right Bank or NBFC
Select a bank or NBFC that offers competitive interest rates on fixed deposits. Compare the interest rates and terms offered by different issuers. Marketplaces like Bajaj Markets can help you compare various options.
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Determine the Deposit Amount
Decide on the amount you want to deposit. The higher the deposit amount, the higher the monthly interest payout. Ensure that the amount you invest does not strain your finances. Have a balanced approach to investing.
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Select the Tenor
Choose a tenor that suits your financial goals. Fixed deposit tenors can range from a few months to several years. Keep in mind that the interest rate may vary based on the tenor. When you opt for longer tenors, you can earn higher interest rates.
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Opt for a Monthly Interest Payout
While opening the fixed deposit, select the monthly interest payout option. This ensures that the interest earned is credited to your account every month. You can use this income for your monthly expenses. Alternatively, you can reinvest it in other financial instruments.
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Complete the Documentation
Submit the necessary documents to open the fixed deposit. This typically includes proof of identity, proof of address, and a photograph. Some issuers may also require additional documents based on their policies.
What Factors Should You Consider?
Investing in a fixed deposit requires careful consideration, so that you can maximise your returns accordingly. Are you thinking about what to consider when investing? If yes, here’s a quick look at the different factors to keep in mind:
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Interest Rates
The interest rate is a crucial factor that determines your monthly income from an FD. Higher interest rates mean higher monthly payouts. Compare the rates offered by various issuers and choose the one offering the highest.
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Premature Withdrawal Penalties
Fixed deposits come with a lock-in period. Withdrawing the deposit before the maturity date can attract penalties. These penalties can reduce your overall returns. Choose a tenor that aligns with your financial needs to avoid premature withdrawals.
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Tax Implications
Interest earned on fixed deposits is taxable. The issuer deducts Tax Deducted at Source (TDS) if the interest income exceeds a certain threshold. Factor in the tax implications while calculating your net monthly income from the fixed deposit.
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Inflation
Inflation can erode the purchasing power of your monthly income over time. Consider the impact of inflation while planning your fixed deposit investments. Diversifying your investments can help mitigate the impact of inflation.
Benefits of Monthly Income from Fixed Deposit
It’s clear how the monthly income can be earned and what factors you must consider. But what would you actually gain by earning monthly income from a fixed deposit? Here are some benefits:
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Steady Income Stream
An FD with a monthly interest payout option provides a steady income stream. This benefits retirees, homemakers, and those who need regular income for their expenses.
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Safety and Security
Fixed deposits are considered a safe investment option. They offer assured returns and are not subject to market fluctuations. This makes them ideal for risk-averse investors.
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Flexibility
Fixed deposits offer flexibility in terms of tenor and interest payout frequency. You can choose a tenor that suits your financial goals. Opt for monthly, quarterly, half-yearly, or yearly interest payouts based on your needs.
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Higher Interest Rates
Fixed deposits usually offer higher interest rates compared to regular savings accounts. This ensures that you earn a higher return on your investment.
Limitations of Monthly Income from Fixed Deposit
It definitely seems like the monthly income from a fixed deposit can be a great option. However, before you invest, here are some limitations you need to consider:
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Lower Liquidity
Fixed deposits come with a lock-in period, meaning that your funds are not easily accessible. Premature withdrawals can attract penalties and reduce your overall returns.
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Taxation
Interest earned on fixed deposits is taxable. The issuer deducts TDS if the interest income exceeds a certain threshold. Factor in the tax implications while calculating your net returns.
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Inflation Impact
Inflation can erode the purchasing power of your monthly income over time. Consider the impact of inflation while planning your fixed deposit investments.
Tips for Maximising Monthly Income from Fixed Deposit
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Laddering Strategy
A laddering strategy involves splitting your investment. This can be done into multiple fixed deposits with different tenors. Doing so ensures that a part of your investment matures at regular intervals. This provides liquidity and the opportunity to reinvest at potentially higher interest rates.
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Reinvesting Interest
If you don’t need monthly interest, consider reinvesting it in other financial instruments. This can help you earn additional returns and grow your wealth over time.
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Choosing Reputable Issuers
Opt for fixed deposits from reputable banks and NBFCs. This ensures the safety of your investment and provides peace of mind.
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Regular Monitoring
Regularly monitor your fixed deposit investments and keep track of the interest rates. This allows you to take advantage of better investment opportunities.
Fixed deposits can provide steady monthly income. Choose the right issuer, select a suitable tenor, and opt for monthly interest payouts. This can help you create a reliable income stream. Consider interest rates, withdrawal penalties, tax implications, and inflation. Follow these tips to maximise your income and achieve financial goals. For comparisons and the best options, visit bajajfinservmarkets.in.
