Investors have several investment instruments to choose from today. Still, nearly 95% of Indian families invest their capital in bank FDs. The popularity of FDs is explained by the fact that they are not market-linked investments, and the market volatility does not affect their performance over tenure. Let us look at what FDs are and how they function.

What is an FD?

A fixed deposit (FD) is an investment instrument banks and NBFCs (Non-Banking Financial Companies) offer to help individuals grow their savings at a fixed interest rate. An FD is also called a ‘term deposit’ since the amount invested in an FD is eventually returned to the investor.

What are the eligibility criteria to start an FD?

Any individual who is an Indian citizen can open FD account. Minors can also open an FD account jointly with an eligible adult.

Which documents need to be provided to start an FD?

The following documents need to be furnished to start an FD:

• Passport-size photographs
• Aadhaar card
• Passport
• Voter’s identity card
• Permanent and valid driving license with a photograph
• Job card issued by NREGA (National Rural Employment Guarantee Act) duly signed by an officer of the state government
• Letter issued by the National Population Register
• PAN (Permanent Account Number) card
  
  

What is the minimum investment amount in an FD?

The minimum deposit amount for an FD varies from one bank or NBFC to another. You need to deposit a minimum amount of ₹10,000 to open an FD account with IDFC FIRST Bank.

What are the features of an FD?

Here are some of the main features of an FD and some of the reasons why they are popular investment instruments:

• Flexible tenures
  You can choose tenures ranging from 8 days to 10 years for an FD account opened with IDFC FIRST Bank.
  
  
• Guaranteed returns
  FDs have an advantage over market-linked investment instruments like stocks or mutual fund schemes, as they offer fixed returns. Hence, once you have opened an FD account, you shall incur the same interest that was promised to you while opening the FD account.
  
  
• Return on investment
  After opening an FD account, you can receive the interest periodically or reinvest it. The latter, called a cumulative FD, helps you take advantage of the power of compounding to grow your wealth. You can calculate your FD interest with IDFC FIRST Bank’s fixed deposit interest calculator.
  
  
• A loan can be availed
  If you need funds urgently, you can avail a loan against your FD.
  
  

Can FDs help us save up on taxes?

Yes, FDs can help us save up on taxes. Individuals can opt for tax-saving FDs. These have a minimum lock-in period of five years and are designed to help investors save income tax. A tax-saving FD gains tax deduction under Section 80C of the Income Tax Act, 1961.

A fixed deposit is a safe investment instrument. It does not vary with market fluctuations and can help you earn interest on your FD investment.