Smart option to get regular income from your investment

When investors want regular income from their investments the automatic choices for many are bank term deposits or post office monthly income scheme. However, declining interest rates have caused many investors to be worried about meeting their income needs from traditional savings schemes. Dividend is another source of income for some investors, but you should understand that dividends are distributed from the profit after tax of a company. If a company makes a loss, for any reason, it will not be able to pay dividends. Further, dividends are declared at the discretion of the management; so there is no assurance of the dividend amount for the shareholder. Most importantly, retail investors should remember that investing in shares of companies can be quite risky, unless you have sufficient experience and expertise in equity investing.


Based on the investor queries received by Advisorkhoj.com and traffic analytics of different sections of our website, we have seen that lot of investors are now interested in mutual fund schemes which pay regular dividends. Mutual funds are less risky than stocks since company specific risks are diversified away in mutual funds and as such, they are better investment options for retail investors. Some mutual fund schemes have excellent dividend pay-out track records and as such, can be good investment options for investors seeking regular income.




However, it is important for mutual fund investors to know that, regulations decree dividends to be paid only from the accumulated profits of a scheme. Mutual funds are subject to market risks and their performance is linked to market conditions. If a mutual fund scheme is not able to make profits due to adverse market conditions it will not be able to pay dividends. Dividends are declared at the discretion of the fund manager of the scheme and there is no assurance with respect to amount or timing of the dividend.

Investors, who want to meet all or most of their income needs from their investments, require a fair bit of certainty with respect to cash-flows, both in terms of amount and timing. Systematic Withdrawal Plans is a smart investment option for such investors because it gives fixed cash-flows to investors. We are seeing lot of interest in Systematic Withdrawal Plans among retail investors; it shows growing maturity of Indian investors and willingness to explore non-traditional investment options.
What is Systematic Withdrawal Plan?

In Systematic Withdrawal Plan (SWP), you can draw a fixed amount from your mutual fund investment at a specified frequency (monthly, quarterly, annual etc.); you can specify the day of the month when the withdrawal should be made and the amount will be credited directly to your bank account on the specified day. You can continue your SWP as long as there are balance units in your mutual fund scheme account.

To know more about SWP.
How does Systematic Withdrawal Plan work?

Systematic Withdrawal Plan generates cash-flows (income) for investors by redeeming units of mutual fund scheme at specified intervals. The number of units redeemed to generate cash-flows in an SWP depends on the SWP amount and the scheme Net Asset Values (NAV) on the withdrawal dates. For example, let us assume you invested Rs 10 lakhs in a mutual fund scheme. The purchase NAV was Rs 20; so, 50,000 units will be allotted to you. Let us assume you start a monthly SWP of Rs 6,000 after one year from the date of investment to avoid exit loads. In the first month of the SWP, the scheme NAV is 25 (illustrative). In order to generate Rs 6,000 for you, the Asset Management Company (AMC) will redeem 240 units (Rs 6,000 divided by 25). Your balance units will be 49,760 (50,000 minus 240). In the second month, if the NAV is 27, the AMC will redeem 222.22 units ((Rs 6,000 divided by 25) for the SWP and your unit balance will be 49,537.78 (49,760 minus 222.22). In the third month if the scheme NAV is 28, the AMC will redeem 214.28 units and your unit balance will be 49,323.49.

In an SWP, your unit balance will diminish over time, but if the NAV keeps moving at a faster rate than your withdrawal rate, then your investment value will be higher. In the above example, after your third SWP instalment, your investment value will be Rs 13,81,058. You can see that, your investment value has gone up even after making monthly withdrawals. However, if the scheme NAV keeps falling instead of rising, like in a bear market, then effect on your investment value will be opposite, because withdrawals in a falling NAV scenario will require redemption of a higher number of units. Consequently, you will be left with a lower unit balance, which in an environment of falling NAVs can have an adverse impact on your investment.

You may like to know.
An actual SWP example

In stock market, we have both periods of both rising market and falling market. Let us see how SWP works over a sufficiently long period of time, covering both bull and bear markets. In the example below, we will see the results of a monthly SWP from SBI Bluechip Fund over the last 5 years. The last 5 years had both bull and bear markets. Let us assume you invested Rs 10 lakhs in SBI Bluechip Fund (Growth Option) on August 1, 2008.

Further, let us assume that your SWP amount is Rs 7,000 and that your withdrawal date is the 10th of every month. In Advisorkhoj,we urge you to use our calculator, if you are planning an SWP, to get a sense of historical SWP performance of different schemes. We will present the results of the SBI Bluechip Fund SWP example in a summary format; to see detailed results.


You can see that, despite making regular withdrawals (cumulative withdrawal of Rs 4.2 lakhs in the last 5 years), the current investment value (as on August 18, 2017) is over Rs 18.7 lakhs. The SWP return (XIRR) is over 20.6%.
How did we get such impressive results?

The impressive results can be attributed to two main factors. Firstly, the scheme performance was great over the last 5 years. The importance of selecting a good scheme, which gives consistently good returns, cannot be understated. Consistency of performance is extremely important when you are selecting funds for SWP because you will be making regular withdrawals in SWP. A scheme which underperforms for long periods of time can undermine your SWP; hence, the importance of consistent performance in SWP.




The second important factor was that, our withdrawal rate was not excessively high. Your withdrawal rate will be determined by your cash-flow needs, but if it is higher than the average rate of return on investment over a certain period, then you may end up with less than what you invested.

In fact, in our view, you should adopt a conservative approach to withdrawal, because capital markets can be unpredictable. If there is a market crash just when you are beginning your SWP, you will see your unit balance diminishing rapidly. When planning an SWP, it always prudent to be prepared for a bear market (where market can crash 20 – 30%). If the market crashes 30% and your withdrawal rate is 20% per annum, your investment value will be 50% of your initial investment amount; it can take a long time to recover from such a situation. On the other hand, if you withdrawal rate is lower, the recovery will be that much faster.
What should be the ideal withdrawal rate?

There are no hard and fast rules. There is one school of thought, which says that, you withdraw what you need. If your investment amount is large enough to ensure that your withdrawal rate is lower than the average return on investment, over a period of time, it is fine. There is another school of thought, which advocates a more conservative approach, allowing for the possibility of a bear market before your investment has a chance to grow in value.

There is a third school of thought, which recommends the withdrawal rate to be the same as or lower than long term fixed income returns (Government Bond average long term yields can be taken as a proxy for long term fixed income returns). We used the third approach, in the SBI Bluechip Fund SWP example, but we are not saying that, this is the ideal approach. Your withdrawal rate should be determined by how much you can invest, your cash-flow needs, and at same time, making sure that, the withdrawal rate is lower than the average rate of return over a period of time, allowing for the possibility of a bear market in the near future. It is a careful balancing act.
Be mindful of exit loads and capital gains tax considerations

SWP is essentially a series of redemptions, to meet your income needs. Mutual fund unit redemptions, within a certain period from the date of investment, may attract exit loads. Therefore, you should be consider exit load period when planning your SWP. You should also know that, capital gains tax will apply, when you are selling your mutual fund units within 12 months from the date of investment. Profits made from sale of units of equity funds within 12 months from the date of investment are taxed at 15% (short term capital gains tax). Profits made from sale of units of equity funds after 12 months from the date of investment are tax-free. You should plan your SWP accordingly.
Long term SWP from debt oriented funds can yield tax benefits compared to traditional products

Interest income from traditional fixed income products like bank FDs (term deposits) and post office savings schemes are taxed as per the income tax slab of the investor. Debt mutual fund dividends, though tax-free in hands of the investors, attract a dividend distribution tax of 28.84%, payable by the AMC, thereby reducing the actual dividend pay-out to investors. Long term capital gains tax from debt funds are taxed at 20% after allowing for indexation benefits.

SWPs over a long term from debt funds result in the incidence of long term capital gains tax after 3 years from the date of investment. SWPs are therefore, more tax efficient than traditional fixed income schemes or even dividend options of debt funds, over a long (more than 3 years) investment horizon.

SWP from balanced funds is also an ideal option as the taxation of balanced funds is same as that of equity funds

Conclusion

Mutual funds offer a variety of smart and convenient options to meet specific needs of investors. While awareness of mutual funds in India has been increasing steadily over the past decade, there is still lack of awareness of some smart investment facilities available to investors. Our endeavour is to enhance awareness of the smart facilities among the investor population. In this blog post, we discussed about various aspects of Systematic Withdrawal Plans. SWP is a smart and convenient option for getting predictable cash-flows from your investment; at the same time, there a multiple considerations that you need to be aware of, to get the desired results from your SWP. If you need regular income from your investments, you should discuss Systematic Withdrawal Plan options with your financial advisors..


Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.

Smart option to get regular income from your investment

1. When investors want regular income from their investments the automatic choices for many are bank term deposits or post office monthly income scheme. However, declining interest rates have caused many investors to be worried about meeting their income needs from traditional savings schemes. Dividend is another source of income for some investors, but you should understand that dividends are distributed from the profit after tax of a company. If a company makes a loss, for any reason, it will not be able to pay dividends. Further, dividends are declared at the discretion of the management; so there is no assurance of the dividend amount for the shareholder. Most importantly, retail investors should remember that investing in shares of companies can be quite risky, unless you have sufficient experience and expertise in equity investing.
3. Based on the investor queries received by Advisorkhoj.com and traffic analytics of different sections of our website, we have seen that lot of investors are now interested in mutual fund schemes which pay regular dividends. Mutual funds are less risky than stocks since company specific risks are diversified away in mutual funds and as such, they are better investment options for retail investors. Some mutual fund schemes have excellent dividend pay-out track records and as such, can be good investment options for investors seeking regular income.

However, it is important for mutual fund investors to know that, regulations decree dividends to be paid only from the accumulated profits of a scheme. Mutual funds are subject to market risks and their performance is linked to market conditions. If a mutual fund scheme is not able to make profits due to adverse market conditions it will not be able to pay dividends. Dividends are declared at the discretion of the fund manager of the scheme and there is no assurance with respect to amount or timing of the dividend.

Investors, who want to meet all or most of their income needs from their investments, require a fair bit of certainty with respect to cash-flows, both in terms of amount and timing. Systematic Withdrawal Plans is a smart investment option for such investors because it gives fixed cash-flows to investors. We are seeing lot of interest in Systematic Withdrawal Plans among retail investors; it shows growing maturity of Indian investors and willingness to explore non-traditional investment options.

What is Systematic Withdrawal Plan?

In Systematic Withdrawal Plan (SWP), you can draw a fixed amount from your mutual fund investment at a specified frequency (monthly, quarterly, annual etc.); you can specify the day of the month when the withdrawal should be made and the amount will be credited directly to your bank account on the specified day. You can continue your SWP as long as there are balance units in your mutual fund scheme account.

To know more about SWP.

How does Systematic Withdrawal Plan work?

Systematic Withdrawal Plan generates cash-flows (income) for investors by redeeming units of mutual fund scheme at specified intervals. The number of units redeemed to generate cash-flows in an SWP depends on the SWP amount and the scheme Net Asset Values (NAV) on the withdrawal dates. For example, let us assume you invested Rs 10 lakhs in a mutual fund scheme. The purchase NAV was Rs 20; so, 50,000 units will be allotted to you. Let us assume you start a monthly SWP of Rs 6,000 after one year from the date of investment to avoid exit loads. In the first month of the SWP, the scheme NAV is 25 (illustrative). In order to generate Rs 6,000 for you, the Asset Management Company (AMC) will redeem 240 units (Rs 6,000 divided by 25). Your balance units will be 49,760 (50,000 minus 240). In the second month, if the NAV is 27, the AMC will redeem 222.22 units ((Rs 6,000 divided by 25) for the SWP and your unit balance will be 49,537.78 (49,760 minus 222.22). In the third month if the scheme NAV is 28, the AMC will redeem 214.28 units and your unit balance will be 49,323.49.

In an SWP, your unit balance will diminish over time, but if the NAV keeps moving at a faster rate than your withdrawal rate, then your investment value will be higher. In the above example, after your third SWP instalment, your investment value will be Rs 13,81,058. You can see that, your investment value has gone up even after making monthly withdrawals. However, if the scheme NAV keeps falling instead of rising, like in a bear market, then effect on your investment value will be opposite, because withdrawals in a falling NAV scenario will require redemption of a higher number of units. Consequently, you will be left with a lower unit balance, which in an environment of falling NAVs can have an adverse impact on your investment.

You may like to know.

An actual SWP example

In stock market, we have both periods of both rising market and falling market. Let us see how SWP works over a sufficiently long period of time, covering both bull and bear markets. In the example below, we will see the results of a monthly SWP from SBI Bluechip Fund over the last 5 years. The last 5 years had both bull and bear markets. Let us assume you invested Rs 10 lakhs in SBI Bluechip Fund (Growth Option) on August 1, 2008.

Further, let us assume that your SWP amount is Rs 7,000 and that your withdrawal date is the 10^th of every month. In Advisorkhoj,we urge you to use our calculator, if you are planning an SWP, to get a sense of historical SWP performance of different schemes. We will present the results of the SBI Bluechip Fund SWP example in a summary format; to see detailed results.

You can see that, despite making regular withdrawals (cumulative withdrawal of Rs 4.2 lakhs in the last 5 years), the current investment value (as on August 18, 2017) is over Rs 18.7 lakhs. The SWP return (XIRR) is over 20.6%.

How did we get such impressive results?

The impressive results can be attributed to two main factors. Firstly, the scheme performance was great over the last 5 years. The importance of selecting a good scheme, which gives consistently good returns, cannot be understated. Consistency of performance is extremely important when you are selecting funds for SWP because you will be making regular withdrawals in SWP. A scheme which underperforms for long periods of time can undermine your SWP; hence, the importance of consistent performance in SWP.

The second important factor was that, our withdrawal rate was not excessively high. Your withdrawal rate will be determined by your cash-flow needs, but if it is higher than the average rate of return on investment over a certain period, then you may end up with less than what you invested.

In fact, in our view, you should adopt a conservative approach to withdrawal, because capital markets can be unpredictable. If there is a market crash just when you are beginning your SWP, you will see your unit balance diminishing rapidly. When planning an SWP, it always prudent to be prepared for a bear market (where market can crash 20 – 30%). If the market crashes 30% and your withdrawal rate is 20% per annum, your investment value will be 50% of your initial investment amount; it can take a long time to recover from such a situation. On the other hand, if you withdrawal rate is lower, the recovery will be that much faster.

What should be the ideal withdrawal rate?

There are no hard and fast rules. There is one school of thought, which says that, you withdraw what you need. If your investment amount is large enough to ensure that your withdrawal rate is lower than the average return on investment, over a period of time, it is fine. There is another school of thought, which advocates a more conservative approach, allowing for the possibility of a bear market before your investment has a chance to grow in value.

There is a third school of thought, which recommends the withdrawal rate to be the same as or lower than long term fixed income returns (Government Bond average long term yields can be taken as a proxy for long term fixed income returns). We used the third approach, in the SBI Bluechip Fund SWP example, but we are not saying that, this is the ideal approach. Your withdrawal rate should be determined by how much you can invest, your cash-flow needs, and at same time, making sure that, the withdrawal rate is lower than the average rate of return over a period of time, allowing for the possibility of a bear market in the near future. It is a careful balancing act.

Be mindful of exit loads and capital gains tax considerations

SWP is essentially a series of redemptions, to meet your income needs. Mutual fund unit redemptions, within a certain period from the date of investment, may attract exit loads. Therefore, you should be consider exit load period when planning your SWP. You should also know that, capital gains tax will apply, when you are selling your mutual fund units within 12 months from the date of investment. Profits made from sale of units of equity funds within 12 months from the date of investment are taxed at 15% (short term capital gains tax). Profits made from sale of units of equity funds after 12 months from the date of investment are tax-free. You should plan your SWP accordingly.

Long term SWP from debt oriented funds can yield tax benefits compared to traditional products

Interest income from traditional fixed income products like bank FDs (term deposits) and post office savings schemes are taxed as per the income tax slab of the investor. Debt mutual fund dividends, though tax-free in hands of the investors, attract a dividend distribution tax of 28.84%, payable by the AMC, thereby reducing the actual dividend pay-out to investors. Long term capital gains tax from debt funds are taxed at 20% after allowing for indexation benefits.

SWPs over a long term from debt funds result in the incidence of long term capital gains tax after 3 years from the date of investment. SWPs are therefore, more tax efficient than traditional fixed income schemes or even dividend options of debt funds, over a long (more than 3 years) investment horizon.

SWP from balanced funds is also an ideal option as the taxation of balanced funds is same as that of equity funds

Conclusion

Mutual funds offer a variety of smart and convenient options to meet specific needs of investors. While awareness of mutual funds in India has been increasing steadily over the past decade, there is still lack of awareness of some smart investment facilities available to investors. Our endeavour is to enhance awareness of the smart facilities among the investor population. In this blog post, we discussed about various aspects of Systematic Withdrawal Plans. SWP is a smart and convenient option for getting predictable cash-flows from your investment; at the same time, there a multiple considerations that you need to be aware of, to get the desired results from your SWP. If you need regular income from your investments, you should discuss Systematic Withdrawal Plan options with your financial advisors.

.

Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.

Smart option to get regular income from your investment

1. When investors want regular income from their investments the automatic choices for many are bank term deposits or post office monthly income scheme. However, declining interest rates have caused many investors to be worried about meeting their income needs from traditional savings schemes. Dividend is another source of income for some investors, but you should understand that dividends are distributed from the profit after tax of a company. If a company makes a loss, for any reason, it will not be able to pay dividends. Further, dividends are declared at the discretion of the management; so there is no assurance of the dividend amount for the shareholder. Most importantly, retail investors should remember that investing in shares of companies can be quite risky, unless you have sufficient experience and expertise in equity investing.
3. Based on the investor queries received by Advisorkhoj.com and traffic analytics of different sections of our website, we have seen that lot of investors are now interested in mutual fund schemes which pay regular dividends. Mutual funds are less risky than stocks since company specific risks are diversified away in mutual funds and as such, they are better investment options for retail investors. Some mutual fund schemes have excellent dividend pay-out track records and as such, can be good investment options for investors seeking regular income.

However, it is important for mutual fund investors to know that, regulations decree dividends to be paid only from the accumulated profits of a scheme. Mutual funds are subject to market risks and their performance is linked to market conditions. If a mutual fund scheme is not able to make profits due to adverse market conditions it will not be able to pay dividends. Dividends are declared at the discretion of the fund manager of the scheme and there is no assurance with respect to amount or timing of the dividend.

Investors, who want to meet all or most of their income needs from their investments, require a fair bit of certainty with respect to cash-flows, both in terms of amount and timing. Systematic Withdrawal Plans is a smart investment option for such investors because it gives fixed cash-flows to investors. We are seeing lot of interest in Systematic Withdrawal Plans among retail investors; it shows growing maturity of Indian investors and willingness to explore non-traditional investment options.

What is Systematic Withdrawal Plan?

In Systematic Withdrawal Plan (SWP), you can draw a fixed amount from your mutual fund investment at a specified frequency (monthly, quarterly, annual etc.); you can specify the day of the month when the withdrawal should be made and the amount will be credited directly to your bank account on the specified day. You can continue your SWP as long as there are balance units in your mutual fund scheme account.

To know more about SWP.

How does Systematic Withdrawal Plan work?

Systematic Withdrawal Plan generates cash-flows (income) for investors by redeeming units of mutual fund scheme at specified intervals. The number of units redeemed to generate cash-flows in an SWP depends on the SWP amount and the scheme Net Asset Values (NAV) on the withdrawal dates. For example, let us assume you invested Rs 10 lakhs in a mutual fund scheme. The purchase NAV was Rs 20; so, 50,000 units will be allotted to you. Let us assume you start a monthly SWP of Rs 6,000 after one year from the date of investment to avoid exit loads. In the first month of the SWP, the scheme NAV is 25 (illustrative). In order to generate Rs 6,000 for you, the Asset Management Company (AMC) will redeem 240 units (Rs 6,000 divided by 25). Your balance units will be 49,760 (50,000 minus 240). In the second month, if the NAV is 27, the AMC will redeem 222.22 units ((Rs 6,000 divided by 25) for the SWP and your unit balance will be 49,537.78 (49,760 minus 222.22). In the third month if the scheme NAV is 28, the AMC will redeem 214.28 units and your unit balance will be 49,323.49.

In an SWP, your unit balance will diminish over time, but if the NAV keeps moving at a faster rate than your withdrawal rate, then your investment value will be higher. In the above example, after your third SWP instalment, your investment value will be Rs 13,81,058. You can see that, your investment value has gone up even after making monthly withdrawals. However, if the scheme NAV keeps falling instead of rising, like in a bear market, then effect on your investment value will be opposite, because withdrawals in a falling NAV scenario will require redemption of a higher number of units. Consequently, you will be left with a lower unit balance, which in an environment of falling NAVs can have an adverse impact on your investment.

You may like to know.

An actual SWP example

In stock market, we have both periods of both rising market and falling market. Let us see how SWP works over a sufficiently long period of time, covering both bull and bear markets. In the example below, we will see the results of a monthly SWP from SBI Bluechip Fund over the last 5 years. The last 5 years had both bull and bear markets. Let us assume you invested Rs 10 lakhs in SBI Bluechip Fund (Growth Option) on August 1, 2008.

Further, let us assume that your SWP amount is Rs 7,000 and that your withdrawal date is the 10^th of every month. In Advisorkhoj,we urge you to use our calculator, if you are planning an SWP, to get a sense of historical SWP performance of different schemes. We will present the results of the SBI Bluechip Fund SWP example in a summary format; to see detailed results.

You can see that, despite making regular withdrawals (cumulative withdrawal of Rs 4.2 lakhs in the last 5 years), the current investment value (as on August 18, 2017) is over Rs 18.7 lakhs. The SWP return (XIRR) is over 20.6%.

How did we get such impressive results?

The impressive results can be attributed to two main factors. Firstly, the scheme performance was great over the last 5 years. The importance of selecting a good scheme, which gives consistently good returns, cannot be understated. Consistency of performance is extremely important when you are selecting funds for SWP because you will be making regular withdrawals in SWP. A scheme which underperforms for long periods of time can undermine your SWP; hence, the importance of consistent performance in SWP.

The second important factor was that, our withdrawal rate was not excessively high. Your withdrawal rate will be determined by your cash-flow needs, but if it is higher than the average rate of return on investment over a certain period, then you may end up with less than what you invested.

In fact, in our view, you should adopt a conservative approach to withdrawal, because capital markets can be unpredictable. If there is a market crash just when you are beginning your SWP, you will see your unit balance diminishing rapidly. When planning an SWP, it always prudent to be prepared for a bear market (where market can crash 20 – 30%). If the market crashes 30% and your withdrawal rate is 20% per annum, your investment value will be 50% of your initial investment amount; it can take a long time to recover from such a situation. On the other hand, if you withdrawal rate is lower, the recovery will be that much faster.

What should be the ideal withdrawal rate?

There are no hard and fast rules. There is one school of thought, which says that, you withdraw what you need. If your investment amount is large enough to ensure that your withdrawal rate is lower than the average return on investment, over a period of time, it is fine. There is another school of thought, which advocates a more conservative approach, allowing for the possibility of a bear market before your investment has a chance to grow in value.

There is a third school of thought, which recommends the withdrawal rate to be the same as or lower than long term fixed income returns (Government Bond average long term yields can be taken as a proxy for long term fixed income returns). We used the third approach, in the SBI Bluechip Fund SWP example, but we are not saying that, this is the ideal approach. Your withdrawal rate should be determined by how much you can invest, your cash-flow needs, and at same time, making sure that, the withdrawal rate is lower than the average rate of return over a period of time, allowing for the possibility of a bear market in the near future. It is a careful balancing act.

Be mindful of exit loads and capital gains tax considerations

SWP is essentially a series of redemptions, to meet your income needs. Mutual fund unit redemptions, within a certain period from the date of investment, may attract exit loads. Therefore, you should be consider exit load period when planning your SWP. You should also know that, capital gains tax will apply, when you are selling your mutual fund units within 12 months from the date of investment. Profits made from sale of units of equity funds within 12 months from the date of investment are taxed at 15% (short term capital gains tax). Profits made from sale of units of equity funds after 12 months from the date of investment are tax-free. You should plan your SWP accordingly.

Long term SWP from debt oriented funds can yield tax benefits compared to traditional products

Interest income from traditional fixed income products like bank FDs (term deposits) and post office savings schemes are taxed as per the income tax slab of the investor. Debt mutual fund dividends, though tax-free in hands of the investors, attract a dividend distribution tax of 28.84%, payable by the AMC, thereby reducing the actual dividend pay-out to investors. Long term capital gains tax from debt funds are taxed at 20% after allowing for indexation benefits.

SWPs over a long term from debt funds result in the incidence of long term capital gains tax after 3 years from the date of investment. SWPs are therefore, more tax efficient than traditional fixed income schemes or even dividend options of debt funds, over a long (more than 3 years) investment horizon.

SWP from balanced funds is also an ideal option as the taxation of balanced funds is same as that of equity funds. Know why Why Balanced Funds may be the best investments for new mutual fund investors

You may also like to read about a balanced fund which is one of the Best Balanced Fund in the last 5 years

Conclusion

Mutual funds offer a variety of smart and convenient options to meet specific needs of investors. While awareness of mutual funds in India has been increasing steadily over the past decade, there is still lack of awareness of some smart investment facilities available to investors. Our endeavour is to enhance awareness of the smart facilities among the investor population. In this blog post, we discussed about various aspects of Systematic Withdrawal Plans. SWP is a smart and convenient option for getting predictable cash-flows from your investment; at the same time, there a multiple considerations that you need to be aware of, to get the desired results from your SWP. If you need regular income from your investments, you should discuss Systematic Withdrawal Plan options with your financial advisors.

.

Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.

Systematic Withdrawal Plan: Smart option to get regular income from your investment

When investors want regular income from their investments the automatic choices for many are bank term deposits or post office monthly income scheme. However, declining interest rates have caused many investors to be worried about meeting their income needs from traditional savings schemes. Dividend is another source of income for some investors, but you should understand that dividends are distributed from the profit after tax of a company. If a company makes a loss, for any reason, it will not be able to pay dividends. Further, dividends are declared at the discretion of the management; so there is no assurance of the dividend amount for the shareholder. Most importantly, retail investors should remember that investing in shares of companies can be quite risky, unless you have sufficient experience and expertise in equity investing.

Based on the investor queries received by Advisorkhoj.com and traffic analytics of different sections of our website, we have seen that lot of investors are now interested in mutual fund schemes which pay regular dividends. Mutual funds are less risky than stocks since company specific risks are diversified away in mutual funds and as such, they are better investment options for retail investors. Some mutual fund schemes have excellent dividend pay-out track records and as such, can be good investment options for investors seeking regular income.

However, it is important for mutual fund investors to know that, regulations decree dividends to be paid only from the accumulated profits of a scheme. Mutual funds are subject to market risks and their performance is linked to market conditions. If a mutual fund scheme is not able to make profits due to adverse market conditions it will not be able to pay dividends. Dividends are declared at the discretion of the fund manager of the scheme and there is no assurance with respect to amount or timing of the dividend.

Investors, who want to meet all or most of their income needs from their investments, require a fair bit of certainty with respect to cash-flows, both in terms of amount and timing. Systematic Withdrawal Plans is a smart investment option for such investors because it gives fixed cash-flows to investors. We are seeing lot of interest in Systematic Withdrawal Plans among retail investors; it shows growing maturity of Indian investors and willingness to explore non-traditional investment options.

What is Systematic Withdrawal Plan?

In Systematic Withdrawal Plan (SWP), you can draw a fixed amount from your mutual fund investment at a specified frequency (monthly, quarterly, annual etc.); you can specify the day of the month when the withdrawal should be made and the amount will be credited directly to your bank account on the specified day. You can continue your SWP as long as there are balance units in your mutual fund scheme account.

To know more about SWP.

How does Systematic Withdrawal Plan work?

Systematic Withdrawal Plan generates cash-flows (income) for investors by redeeming units of mutual fund scheme at specified intervals. The number of units redeemed to generate cash-flows in an SWP depends on the SWP amount and the scheme Net Asset Values (NAV) on the withdrawal dates. For example, let us assume you invested Rs 10 lakhs in a mutual fund scheme. The purchase NAV was Rs 20; so, 50,000 units will be allotted to you. Let us assume you start a monthly SWP of Rs 6,000 after one year from the date of investment to avoid exit loads. In the first month of the SWP, the scheme NAV is 25 (illustrative). In order to generate Rs 6,000 for you, the Asset Management Company (AMC) will redeem 240 units (Rs 6,000 divided by 25). Your balance units will be 49,760 (50,000 minus 240). In the second month, if the NAV is 27, the AMC will redeem 222.22 units ((Rs 6,000 divided by 25) for the SWP and your unit balance will be 49,537.78 (49,760 minus 222.22). In the third month if the scheme NAV is 28, the AMC will redeem 214.28 units and your unit balance will be 49,323.49.

In an SWP, your unit balance will diminish over time, but if the NAV keeps moving at a faster rate than your withdrawal rate, then your investment value will be higher. In the above example, after your third SWP instalment, your investment value will be Rs 13,81,058. You can see that, your investment value has gone up even after making monthly withdrawals. However, if the scheme NAV keeps falling instead of rising, like in a bear market, then effect on your investment value will be opposite, because withdrawals in a falling NAV scenario will require redemption of a higher number of units. Consequently, you will be left with a lower unit balance, which in an environment of falling NAVs can have an adverse impact on your investment.

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An actual SWP example

In stock market, we have both periods of both rising market and falling market. Let us see how SWP works over a sufficiently long period of time, covering both bull and bear markets. In the example below, we will see the results of a monthly SWP from SBI Bluechip Fund over the last 5 years. The last 5 years had both bull and bear markets. Let us assume you invested Rs 10 lakhs in SBI Bluechip Fund (Growth Option) on August 1, 2008.

Further, let us assume that your SWP amount is Rs 7,000 and that your withdrawal date is the 10^th of every month. In Advisorkhoj, we have developed an SWP calculator; we urge you to use our calculator, if you are planning an SWP, to get a sense of historical SWP performance of different schemes. We will present the results of the SBI Bluechip Fund SWP example in a summary format; to see detailed results.

You can see that, despite making regular withdrawals (cumulative withdrawal of Rs 4.2 lakhs in the last 5 years), the current investment value (as on August 18, 2017) is over Rs 18.7 lakhs. The SWP return (XIRR) is over 20.6%.

How did we get such impressive results?

The impressive results can be attributed to two main factors. Firstly, the scheme performance was great over the last 5 years. The importance of selecting a good scheme, which gives consistently good returns, cannot be understated. Consistency of performance is extremely important when you are selecting funds for SWP because you will be making regular withdrawals in SWP. A scheme which underperforms for long periods of time can undermine your SWP; hence, the importance of consistent performance in SWP.

Know why SBI Bluechip Fund is the best performing large cap fund in the last 3 years

The second important factor was that, our withdrawal rate was not excessively high. Your withdrawal rate will be determined by your cash-flow needs, but if it is higher than the average rate of return on investment over a certain period, then you may end up with less than what you invested.

In fact, in our view, you should adopt a conservative approach to withdrawal, because capital markets can be unpredictable. If there is a market crash just when you are beginning your SWP, you will see your unit balance diminishing rapidly. When planning an SWP, it always prudent to be prepared for a bear market (where market can crash 20 – 30%). If the market crashes 30% and your withdrawal rate is 20% per annum, your investment value will be 50% of your initial investment amount; it can take a long time to recover from such a situation. On the other hand, if you withdrawal rate is lower, the recovery will be that much faster.

What should be the ideal withdrawal rate?

There are no hard and fast rules. There is one school of thought, which says that, you withdraw what you need. If your investment amount is large enough to ensure that your withdrawal rate is lower than the average return on investment, over a period of time, it is fine. There is another school of thought, which advocates a more conservative approach, allowing for the possibility of a bear market before your investment has a chance to grow in value.

There is a third school of thought, which recommends the withdrawal rate to be the same as or lower than long term fixed income returns (Government Bond average long term yields can be taken as a proxy for long term fixed income returns). We used the third approach, in the SBI Bluechip Fund SWP example, but we are not saying that, this is the ideal approach. Your withdrawal rate should be determined by how much you can invest, your cash-flow needs, and at same time, making sure that, the withdrawal rate is lower than the average rate of return over a period of time, allowing for the possibility of a bear market in the near future. It is a careful balancing act.

Be mindful of exit loads and capital gains tax considerations

SWP is essentially a series of redemptions, to meet your income needs. Mutual fund unit redemptions, within a certain period from the date of investment, may attract exit loads. Therefore, you should be consider exit load period when planning your SWP. You should also know that, capital gains tax will apply, when you are selling your mutual fund units within 12 months from the date of investment. Profits made from sale of units of equity funds within 12 months from the date of investment are taxed at 15% (short term capital gains tax). Profits made from sale of units of equity funds after 12 months from the date of investment are tax-free. You should plan your SWP accordingly.

Long term SWP from debt oriented funds can yield tax benefits compared to traditional products

Interest income from traditional fixed income products like bank FDs (term deposits) and post office savings schemes are taxed as per the income tax slab of the investor. Debt mutual fund dividends, though tax-free in hands of the investors, attract a dividend distribution tax of 28.84%, payable by the AMC, thereby reducing the actual dividend pay-out to investors. Long term capital gains tax from debt funds are taxed at 20% after allowing for indexation benefits.

SWPs over a long term from debt funds result in the incidence of long term capital gains tax after 3 years from the date of investment. SWPs are therefore, more tax efficient than traditional fixed income schemes or even dividend options of debt funds, over a long (more than 3 years) investment horizon.

SWP from balanced funds is also an ideal option as the taxation of balanced funds is same as that of equity funds. Know why Why Balanced Funds may be the best investments for new mutual fund investors

You may also like to read about a balanced fund which is one of the Best Balanced Fund in the last 5 years

Conclusion

Mutual funds offer a variety of smart and convenient options to meet specific needs of investors. While awareness of mutual funds in India has been increasing steadily over the past decade, there is still lack of awareness of some smart investment facilities available to investors. Our endeavour is to enhance awareness of the smart facilities among the investor population. In this blog post, we discussed about various aspects of Systematic Withdrawal Plans. SWP is a smart and convenient option for getting predictable cash-flows from your investment; at the same time, there a multiple considerations that you need to be aware of, to get the desired results from your SWP. If you need regular income from your investments, you should discuss Systematic Withdrawal Plan options with your financial advisors.

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Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.

BAJAJ HOLDINGS & INVESTMENTS / Non-Banking Financial Company

MUTUAL FUNDS VS FIXED DEPOSIT

Bajaj Finance Fixed Deposit Features & Benefits | Up to 8.10% Returns

Fixed Deposit (FD): Features and Benefits:

an interest rate of 7.85 %, Bajaj Finance’s Fixed Deposit offers one of the safest investment at one of the best interest rates in the country.
Bajaj Finance Offers the Following FD Schemes:

Customer Categories	Interest Rates
If you are new FD customer	7.85%
If you are a senior citizen	8.10%
If you are our loan customer	7.95%
If you are a Bajaj group employee	7.95%
If you renew your FD	+0.10%

Features of Bajaj Finance’s Fixed Deposit (FD):

1. 7.85% return on your investment
   Bajaj Finance offers 7.85% interest rate on FDs, which is one of the highest in the market. The interest rate can go up to 8.10% depending on the customer type. This makes Fixed Deposit investment more lucrative option than keeping your money in a savings bank account.


2. High on stability and credibility
   Bajaj Finance’s FD has one of the highest approval ratings in the market, which means safety and reliability for every investor. Bajaj Finance’s FD has been awarded with ICRA’s MAAA (Stable) Rating and CRISIL’s FAAA/Stable Rating.


3. Online application process
   To open an FD with Bajaj Finance, you can easily apply online through our website. Once you fill in the application form, an agent will call you to collect the documents and payment cheque.


4. Minimum deposit of Rs.25,000
   Fixed Deposit gives you steady returns with high interest rates. You can start your FD with Bajaj Finance with a minimum deposit of Rs.25,000. However, the bigger the investment, higher the returns.


5. Fixed Deposit Calculator available
   Use our Fixed Deposit Calculator to calculate the interest and determine the maturity amount of the deposit you can make. This also helps you calculate and compare the interest receivable by changing the deposit amount, tenor and interest payment frequency.


6. 200+ branches all over the country
   We have a huge network of people to help you open a Fixed Deposit account. We provide the Deposit facility in 200+ cities in India. This means that you can easily access any of our branch to open your FD. Here’s a list of all the cities where we offer the Fixed Deposits facility.


7. Manage your FD online
   Manage your FD account online by seeing all the interest transfers and other information. Just log in to your fixed deposit account via Bajaj Finance’s customer portal, Experia and manage your account online.


8. Flexible FD Tenure between 12-60 Month:
   With Bajaj Finance’s Fixed Deposit, you have the flexibility to choose your tenure from 12 to 60 months according to your needs. If you change your mind, you have the flexibility to close your FD account and start another one for a different duration.

Benefits of Investing in a Fixed Deposit:

Why settle for a 4% interest rate in your savings account when you can earn as high as 7.85% in a Fixed Deposit with Bajaj Finance? Here are some of the benefits of investing in a fixed deposit:

1. No volatility:
   When interest rates drop and rise, changing rapidly, investors look for safety, and this is when fixed deposits offer the right investment opportunity..


2. Not dependent on market fluctuations:
   A fixed deposit remains stable and risk-free no matter whether the market is fluctuating or if the economy is experiencing a flux due to inflation or any other reason.


3. A necessary part of your portfolio as a prudent investor:
   Generations of Indian families have considered fixed deposits for safekeeping and growing their life’s savings. Not only is your principal amount invested free of any risk fluctuations, but the yield over time is also a promising amount.


4. Higher interest rates for senior citizens:
   Senior citizens can benefit greatly from investing their life’s savings in an FD as they are eligible for an additional rate of interest—as high as 0.25% more than the average.

Fixed Deposits: Your Gateway To A Safe Present and A Secure Future

Fixed deposits have a long history of being one of the safest investment options available to Indian investors. They are considered to be a necessary part of any prudent investor’s financial portfolio. In the case of fixed deposit investments, it is important to note that you do not have to spend money to make money. In fact, with proper planning and the right financing corporation, you can go on saving money by reinvesting the money you saved in the first place. All it takes is a smart investment plan which offers a high interest rate, flexible tenors and easy functionality.

The advantages of fixed deposits begin with instantaneous online application approval and carry on all the way to the end with highest rates of return on the longest tenors. There are companies where customer satisfaction is accorded with the highest priority through hundreds of fixed deposit-dedicated branches across the country, completely online management of your account, and an accurate calculator that determines exactly how much you earn after your fixed deposit matures.

Financial Safety at Its Best

Most investors know the regular benefits of FD like higher rates of return and better liquidity options, but here’s a list of what makes a fixed deposit one of your safest preferences:

Guaranteed Return on Investment

Fixed deposits come with a fool-proof offer of receiving your funds back, with interest. No matter what the market condition is, you can always trust fixed deposits to come through for you.

Fixed Rate of Interest

From the moment you apply for fixed deposits until the maturity of your tenor, the interest rate on fixed deposits is never subject to any change. Even if the rates for other investments experience a downfall, your rate of return will not be affected at all.

Flexible Tenor

If you’re planning on saving money, it’s important to know what the future holds. That is the only way most investments pay out profitable returns. With fixed deposits, however, you do not have to worry even if your future in uncertain because they offer a highly flexible tenor period—from 12 months to 60 months.

Tax Savings

Under section 80C of the Income Tax Act formulated in 1961, fixed deposits up to 1 lakh are eligible for tax deductions if the maturity period is 5 years, but the interest earned is taxable.

Safety Net

If, due to unforeseen circumstances, you require a loan from any financial corporation, fixed deposits provide an easy option by letting you take a loan on FD. This means that the company will give you up to 70% to 90% credit as a loan on your own fixed deposit.

Cumulative or Non-cumulative Fixed Deposits

In the interest of financial safety and to keep a constant tab on your funds, some companies offer the option to choose between cumulative and non-cumulative fixed deposits. Although the rates of interest are slightly lower on non-cumulative fixed deposit, you can check through online fixed deposit calculator how rate of interest vary in cumulative and non cumulative fixed deposit. You have the advantage of obtaining a steady flow of cash throughout the tenor period.

Get Started On A Better CIBIL Score

Not only can you keep earning money on your fixed deposits even if you take out a loan on them, you can also improve your CIBIL score using the same loan since financing corporations need to have your credit information recorded with CIBIL to provide loans at a low cost.

7 Best Saving Schemes Every Investor Should Know About

While an FD investment is most sought after by investors because of its safety and freedom from market fluctuations, it doesn’t hurt to look into additional options of investment along with the best FD option that offers a high rate of interest. Some existing options include mutual funds, Atal Pension plan, Jeevan Jyoti Bima, etc., all of which have their own set of characteristics, with safety at its peak.

Why Is It Important To Take Your Time Before Choosing a Good Savings Scheme?

Since savings can be invested to not only safeguard your money, but also offer you additional income, it is best to know their features, benefits, and negative aspects before investing. Here are a few reasons why you should choose a good savings scheme.

1. Investing in a good scheme can put your savings to good use.
2. A profitable scheme can provide you a form of income via returns.
3. Good saving schemes offer you better growth for your income.
4. Certain schemes like fixed deposits are risk-free, so you money is guaranteed to be safe.
5. Some saving schemes offer you tax benefits too.

The 7 Best Saving Schemes Ideal For You

Now that you know of the benefits, you can look at some great saving options. Choose one that suits you best in terms of tenor, returns, risk and reliability.

1. Mutual Funds: This scheme involves a pool of investments by various investors that is managed by an asset management company. These investments yield returns in the form of dividends over a period of time. Some mutual funds have tax benefits under section 80C of the Income Tax Act, and can help you enjoy tax-free returns. Choose mutual funds carefully as they do bear market risks. Seeing their past performance or investing with a trusted financial company are both good ways to ensure relative safety of your investment.
2. Atal pension: This scheme provides pension for the retired with other benefits at the cost of a contribution per month. This scheme is tax-free, and designed for people from lower income groups. Investors aged 60 and above can opt for a fixed pension from Rs.1000 to Rs.5000.
3. Pradhan Mantri Jan Dhan scheme: This scheme is ideal for farmers and those in rural areas. It offers financial services of remittance, deposits, credit card and much more. It features an overdraft facility to up to Rs.5000, along with a RuPay debit card and accidental insurance of up to Rs.1 lakh.
4. PPF: Self-employed and salaried individuals can invest a sum of up to Rs.1.5 lakh in a PPF account and also gain from tax benefits over the returns. Public provident funds are designed by the government for the working class to invest pools of savings. This option provides steady interest over your savings and ensures that they mature over time.
5. Company Fixed Deposits: This safe and reliable investment option involves investing a sum of money in a financial company for a chosen tenor and a fixed rate of interest. Investors get guaranteed returns on maturity of their FDs and can choose between a cumulative interest pay-out or a non-cumulative pay-out that offers interest for their use on chosen intervals.
6. Sukanya Samriddhi Account: The government of India designed this scheme for women. The investor that locks money into this scheme is eligible to receive return up to 9.1%. It was designed by the government so that parents could secure the future of their daughters over the long term. You can invest a minimum of Rs.1000 in this scheme over a period of 21 years.
7. Jeevan Jyoti Bima: This is a life insurance scheme offered by the government of India. In case of death of the insured, it offers the nominee up to Rs.2 lakh. It features an annual premium of Rs.330.

Invest smartly and wisely by finding out which investment option works for you and gives you returns as well as tax deductions. Bajaj Finance offers safe and reliable company FD investments that offer high returns as well as a flexible tenor.

Recurring Deposit vs Fixed Deposit: Which Should You Choose and Why?

A Fixed Deposit is a financial product where you invest a sum of money with a financial institution or bank for a chosen tenor to earn a fixed interest and receive your invested principal at maturity. Recurring deposits, on the other hand, involve investing recurring sums of money on a monthly basis and gaining interest. There are numerous benefits that both options have; however, you should ask yourself a few questions before choosing one over the other.

Questions To Consider Before You Choose Between FD and RD

1. Do you want the stability of income?
2. Do you have the income to invest on a monthly basis?
3. What kind of a tenor are you looking for?
4. What interest rates are you expecting?
5. Do you seek tax benefits?

Asking yourself these questions can help provide you better clarity in the FD vs RD debate.

Similarities and Differences between FDs and RDs

Before we study their difference, let’s have a look at their similarities:

1. Both Fixed deposits and recurring deposits offer safe and risk-free investments, which are popular amongst most investors looking to save money for retirement as well as during their working life.
2. Both these options offer you numerous benefits like steady returns, attractive interest rates, nomination facilities and loans against the investment, and both schemes are easy to sign up for as they are offered by numerous lenders and financial institutions.
3. Fixed deposits and recurring deposits also feature tax exemption on interest earned up to Rs.10,000 per year and are taxed as per your income slab above this figure.
4. Both fixed deposits and recurring deposits allow the investor to withdraw the sum after the end of the tenor. However, premature withdrawal is penalized in both cases.
5. Fixed deposits and recurring deposits both need you to submit ID proofs and address proofs like Aadhar card, pan card and more before your accounts can be started. They also involve carrying out the usual formalities like filling an application form, viewing terms and conditions and more.

Here is How Fixed Deposits Differ From Recurring Deposits:

1. Lump Sum vs Periodic Investment: A Fixed Deposit is best suited for those who have accumulated a sum of money as savings, and want to invest it for a short term. A recurring deposit, on the other hand, is best for those who can invest a smaller amount every month.
2. Tenor: This is the amount of time that takes for the deposit to grow and mature. The tenor for traditional Fixed Deposits range from 7 days to 10 years, and the tenor for recurring deposits range from 1 year to 10 years. Also, FDs are a one-time investment, whereas recurring deposits need continuous investment, just like the name suggests.
3. Rate of Interest: Interest rates for FDs and recurring deposits only vary with the amount invested and the scheme selected. The more you invest in an FD at one time, the more it grows and matures. However, the overall maturity of an RD remains unaffected by the numbers of times you successively make a deposit. Usually, FDs offer more interest than RDs.
4. Maximum Investment: These are the limits that financial institutions and lenders put on deposits. The usual maximum limit for FDs is Rs.1.5 lakh; however, this can vary amongst lenders. For RDs, the maximum can usually go up to Rs.15 lakh.
5. Returns: These refers to the interest that your investment earns over a given tenor. For FDs, the interest returns range from 6.96% to 8%. For recurring deposits, the interest rates over a tenor of a year vary from 5.25% to 7.90%.

Thus, you can see that both recurring deposits and FDs come with their own benefits that can be ideal for you depending on your requirements. If you are looking to inculcate the saving habit, and would like to invest a small amount from your monthly income, an RD is best for you. But if you have accumulated savings and need a safe way to make your money grow, choose an FD.
Bajaj Finance offers you profitable FD investment schemes to secure the future of your family.

Why breaking a Fixed Deposit prematurely is a bad idea?

Many invest in Fixed Deposits (FDs) as they are one of the safest investment options available to us. But often, when we require funds in an emergency, FDs are one of the first investments that we tend to break. As a result of which, we not only lose out on the interest rates but also incur a penalty on the maturity amount.

Consequences of premature withdrawal

1. Penalties: Premature withdrawal usually involves your bank or financial institution charging you a penalty for withdrawing your FD before maturity.
2. Interest loss: Interest returns are what you get on a periodical basis from the bank over the tenor period. By withdrawing your FD prematurely you are losing out on the interest gains that you could have received by completing the tenor, which could cause a financial loss for you.
3. Prevention of growth: Every FD multiplies into an attractive amount over time. The longer the tenor, the more value is added to your FD. Once your initial investment grows, you can use it for holidays or purchases of assets. However withdrawing your deposit prematurely hinders this growth and you only get back the money you had invested. You would lose out on the matured amount of the FD.
4. Financial uncertainty: If you are retired and have invested in FDs for higher gains, premature withdrawal can cause a considerable amount of uncertainty. You would lose out on a source of income. This would cause worries about paying bills and other rising expenses. Rather than this, taking a loan on your FD is more advisable.
5. Cumbersome procedure: As most transaction procedures, even breaking of FDs comes with its own share of formalities. These formalities involve filling forms and submitting a range of documents. Only after this can you get your invested amount back.

Premature withdrawal of a fixed deposit can have an adverse set of consequences. You should thus consider these factors before making the final decision of breaking your fixed deposits.

Tips and warnings:

1. Do a thorough research on the terms and conditions of your FD.
2. Search for alternate modes of finance instead of breaking your FD.
3. These could be taking a loan against your FD or opting for a personal loan or line of credit.
4. Avoid breaking the FD at the end of the tenure period since this may incur higher penalty.
5. Always have a financial backup of other FDs, shares and mutual funds to support you when you need money for emergencies.
6. Keep about half of your finances liquid to help you access funds in times of needs.

Why choose Fixed Deposits:

As time passes, it becomes more essential for you to save money in safe investments. Fixed deposits are the safest option of investment. They offer you steady and attractive interest returns as income over a chosen tenor. You can benefit from a range of advantages if you keep your FDs secure until maturity. These include:

• Provide a fixed and steady income from interest gains.
• They help your savings grow and mature over the tenor.
• Ideal for senior citizens who seek income after retirement.
• Help put your savings to good use.
• Interest income can be used for various purposes like daily living expenses or buying an asset or even paying for a holiday.

Invest in Bajaj Finance FD with higher rate of interest, stability, cumulative and non-cumulative options and much more.

Bank or Company FDs: Who will you entrust your money with?

There has always existed a strong debate between those investing in bank fixed deposits and those investing in company fixed deposits. That is why it is important to consider the features of both the options before planning your next move. It is also important to study the FD interest rates before the final decision.

To make matters simpler, you can also look up and view the characteristics of both the kinds of deposits. Then, you can compare their attributes to your requirements and make a final decision. Both types of deposits have unique benefits that can help a range of various investors in numerous ways.

Benefits and Features of Company Fixed Deposits:

• Company FDs are fixed deposits that are offered by companies and financial institutions.
• These deposits function as the regular fixed deposits but feature higher interest rates.
• They are low-risk investments and do not face influence of market forces.
• They may be flexible in some cases. This means that you get to choose your tenor or maturity terms.
• These FD accounts can be liquidated easily depending on the terms of the institution.
• These accounts may offer premature withdrawals without restrictions.
• The money from these FDs can be used for any purpose like financing a holiday or even purchasing an asset.
• They offer non-cumulative and cumulative interest pay-outs.
• They feature safety ratings by credit agencies like ICRA and CRISIL. You can choose one based on how high the ratings are.

Benefits and Features of Bank Fixed Deposits:

• These fixed deposits are offered by registered private or state banks.
• The interest rates on these fixed deposits are lower, as banks offer a high level of security to the account. These FDs are secured by the RBI up to Rs.1 lakh.
• Banks, however, also have rigid terms and rules. These rules make premature withdrawing difficult.
• Bank fixed deposits may be less liquid in comparison to company FDs.
• Depending upon bank rules and regulations, you could be levied a penalty for premature withdrawal.
• Banks may give additional privileges to customers you already have a savings account with the bank.
• These are also divided into cumulative and non-cumulative FDs.

Tips to Consider Before Making a Choice:

• Study the market: Before arriving at any conclusion, first study the market and look at all the various options of FDs available.
• Make a list of your needs and requirements: It is important to ask yourself what you want from the FD. Thus you can make a list of your requirements. This could consist of your purpose for investing.
• Evaluate and prioritize: Evaluate all your needs and prioritize which you should consider being given the highest priority.
• Review the options: Once you have evaluated and prioritized, review the options along with their interest rates, and analyze all their attributes and benefits.
• Choose the appropriate option: Once you have found the appropriate plan that matches all your requirements, sign up for that fixed deposit and don’t hesitate to save smartly.
Both bank deposits and company fixed deposits are good in their specific ways. Much of the final decision depends on your needs. For instance, if you want more security, then bank deposits are good. But if your priority lies in receiving higher interest, then company deposits are ideal. Bajaj Finance offers you free online access, attractive interest rates, and many more facilities that will ensure your satisfaction.

Why opening an FD Account is your ticket to financial freedom

What is your favourite tourist destination? Paris? New York? Or is it impossible to decide because there are too many places to wish to visit? A holiday abroad might seem a distant dream to some, but not so for those who invested their savings wisely in a risk-free investment option, like a fixed deposit.

FD schemes can be broadly divided in two categories, namely cumulative and non-cumulative. While cumulative schemes pay out interest at the end of the tenor or maturity term of your FD, the non-cumulative schemes pay you interest on a periodical basis. This can be yearly, monthly or even quarterly. FDs are a good mode of investment for saving your money and even a source of income for senior citizens or those seeking retirement. They come with a range of maturity terms that you can choose from. They are also highly liquid; an FD can be broken any time the need for emergency cash arises.

The Benefits of Investing in a Fixed Deposit

Financial gains from good interest rates and high levels of safety make this option highly favourable for investors. If you select fixed deposits as a form of investment, you can gain benefits like the ones listed below:

1. Interest Income: This is the direct income that you will receive from a fixed deposit. Depending on whether the deposit is cumulative or non-cumulative, you will receive returns periodically or compounded at the end of the tenor.
2. Risk-free Investment: With the numerous investment options available, experts often classify them into two brackets: low risk and high risk investment options. High risk options are usually the options that have influence of market forces, like equity and mutual funds. However, fixed deposits are low risk as they are not affected by market forces and guarantee a fixed return on your investment.
3. Measurable Returns: In this investment option, you are assured of complete financial gains that can be clearly understood. Your interest can also be calculated using an FD calculator, which will help you measure the exact returns that you can expect from your investment.
4. Flexible and Customized Tenor:When opening an FD, you are free to choose a tenor that is most suitable to you. A long tenor can ensure that your investment gains more value and appreciation of interest, while a short tenor can give quicker returns.
5. Good Use for Savings: Often, individuals with cash savings find themselves putting this amount in their bank account, which is not a productive use for it. If you convert this into a fixed deposit account, you can actually make your savings grow.
6. Liquidity: FDs offer liquidity since there is no rigid restriction over the withdrawal of the FD. You can easily break the deposit to raise cash for urgent or unplanned needs. You may be asked to pay a penalty over early withdrawal or lose the full interest, but an FD still gives you the scope for liquidity when you need money during emergencies.
7. Scope for multiple gains: Any individual has the liberty to open more than one fixed deposit, at any given time. There is no limitation over the amount of FDs you own. The higher the number, the more you will gain financially.

So, stop waiting and instantly start your investment in FDs with Bajaj Finance . You can gain from attractive interest rates and also use the FD calculator to forecast your returns.

The best way to take a loan against your Fixed Deposit

 Whenever you are in need for emergency finances, you can easily opt for a loan against FD. This is a secured loan option that requires you to pledge your FD as collateral in return for the loan amount. There are various ways in which a loan against a fixed deposit can benefit you, like low interest rates and relatively easier application formalities. It also helps provide the ability to save your prized assets—like land or property—from being put at stake.

What Will You Need to Apply for a Loan Against FD

A loan against FD is a convenient financing option. However, before you apply for one, you need to consider certain factors. Since this is a customized loan option, it requires you to first have a fixed deposit, and also needs you to clear the application procedures. Here are some things you need to have before applying:

1. Fixed Deposit: Since this loan option is secured against a FD, it is a primary necessity for you to have a FD account in the first place. For those unaware of the term, fixed deposits are sums of money invested in an account that earns interest over a tenor.
2. FD With Matching Value to the Loan: Secondly, it is necessary for your FD to be of the same value as the loan you are borrowing. For example, for those borrowing a loan of Rs.1 lakh, their FD would have to be of the same value, or greater.
3. Other Investments: The loan against FD can work better for you if you have multiple investments. If you just have a single FD that generates cash, it would be risky to put that FD at stake. Hence, before you apply, make sure you have various investments that are yielding good returns.
4. The Tenor has to Match: The tenor for FDs is the period over which the investment matures. A tenor for a loan against fixed deposits is the period over which you have to repay the loan amount. The tenor for your FD has to be the same as your loan tenor, and you have to repay the loan within the maturity duration of your fixed deposit.
5. Clearing the Eligibility Criteria and Application Formalities: To apply for this option, like all other options, you have to match the eligibility criteria. You also have to go through all the application procedures and submit basic documentation.

Benefits of Loans Against Deposits

• These loans are secured and hence have simpler eligibility requirements as compared to unsecured loans.
• Since this option requires submission of collateral, the interest rates are also lower. This makes payment of EMIs more affordable.
• It doesn’t require you to break or liquidate the fixed deposit.
• You can avoid the hassle of putting valuable assets or property at stake.
• You can easily calculate your projected gains by using a handy calculator, and manage your finances accordingly.

How to Apply for Loans Against Deposits

1. Download and carefully fill in all the details in the application form
2. Submit the form with FDR
3. Submit your ECS mandate and cancelled cheque in case you have a non-cumulative FD

Say goodbye to your financial troubles by applying for a rewarding loan against FD here. Bajaj Finserv offers you affordable interest rates and minimal documentation for submission, along with a range of other utilitarian facilities.

Open the Door to New Opportunities with the Help of Fixed Deposits

Having a robust investment portfolio is important at any age, be it for an overall goal of achieving financial stability or to fulfil dreams such as buying a home. Savings also become your rescuers in times of need—like when you experience health issues, lose your job, have a debt to pay off, etc. Thus, savings play a vital role in your life, and a significant method of savings is through fixed deposits. Fixed deposits are one of the most secure investment options available today. When you create your investment portfolio that consists of your financial assets such as stocks, mutual funds, etc., make sure it groups your FD accounts too. FDs offer fixed interest rates, and are a must-have no matter your risk appetite.

Given Below are a Few Ways that Outline How You Can Earn More from your FD Account:

Opt for Company FDs:

The interest rates of company FDs are higher along with flexible tenor, which is why most investors choose them over bank FDs.

Go for Higher Interest Rates:

FDs come with different schemes of interest rates. There is a higher rate of interest for senior citizens, which goes up to 8.10%. Various company group employees and existing loan customers also enjoy higher FD interest rates. Also, when you renew your FDs, you get a higher interest rate, which helps you benefit more. So look out for such opportunities and make the most of higher returns.

Choose Cumulative FDs:

It is advisable to choose cumulative FDs over non-cumulative FDs. Cumulative FDs let you earn more due to compounding interest over your chosen tenor. This means that your annual interest is reinvested and you earn money on it which is then paid out to you at your FD’s maturity. When you choose non cumulative FDs, which offers you interest pay-outs at regular intervals, you still get an interest but lose out on compounding its value.

Avoid Untimely Withdrawals:

When you withdraw your FD investment before the end of the tenor period or before it reaches maturity, you may have to pay a penalty or lose out on your interest earnings. So, before you invest your money for a longer tenor such as 60 months, consider whether you will need to withdraw it early. If yes, opt for a shorter tenor to ensure you don’t pay an early withdrawal penalty.

Decide your Tenor Carefully:

When you invest in an FD, keep a watch on tenor since your FD will only earn you money when its interest rates are higher than the rate of inflation. So ensure that you are not locking in your investment in a fixed deposit for too long. It is better to keep a short tenor to beat inflation, ranging from 12 months to 60 months.

3 Major Advantages of Fixed Deposits

Assured Returns:

Unlike other investment schemes, fixed deposits offer you an assured return, regardless of market fluctuations.

Easy Withdrawal:

Fixed deposits are easy to withdraw when you need money for any conceivable urgency. However, untimely withdrawal of FDs will lead to a penalty.

Greater Flexibility:

It gives you the power to choose the tenor according to your need and requirements. You can also close your previous account and start with a new one or open multiple accounts.
Follow these simple steps to earn more from your fixed deposits. Bajaj Finance’s Fixed Deposits offer the best features—such as high stability and credibility ratings, an easy online application process, a handy fixed deposit calculator, and 200+ branches across India.