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YOUR QUERIES: You can take a personal loan from a bank against your fixed deposits

You can get a personal loan against your FD from the same bank without having to withdraw your money early. Your deposit continues to grow at a pre-determined rate without interruption.

personal loan
I have a total of Rs 20 lakh in bank deposits. Is it possible to put my FDs up as collateral for a bank loan at a lower interest rate?

Yes, you can get a loan against your FD from the same bank without having to withdraw your money early. Your deposit continues to grow at a pre-determined rate without interruption. For the duration of the loan, you pay interest that is a few basis points greater than the FD rate. If you do not return the loan by its due date, the revenues from your FD will clear the loan first, and you will receive the remaining balance.

Approximately half of my fixed-income investments are held in my SBI Overdraft Account for my home loan. It has a 7.7% interest rate (saves that amount from my loan). Should I keep it, transfer it to another instrument, or pay off the loan?

This offers fantastic cash flow management, interest payment management, asset allocation, and rebalancing. Continue with the status quo if your financial flow allows you to pay the EMIs. Only consider paying off the loan if you have a pressing need to do so.

housing loan
I intend to take a home renovation loan to supplement my existing home loan. Will I be able to deduct the loan from my taxes, and will the bank charge me any pre-payment penalties?

The home loan and top-up loan will be treated as a single entity for tax purposes under Sections 80C and 24B. Refer to the sanction letter for pre-payment charges and read the small print for terms and conditions. There are no prepayment charges on a floating rate loan, but they are charges on a fixed-rate personal loan.

I defaulted on a car loan a few years ago. I’d like to get a home loan from the same bank, but it’s turned me down. Should I go to other banks without telling them about the default?

Each Financial Institution reports personal loan default, which is present in the borrower’s credit score. If you have paid off all of your debts, have your credit score corrected at the same bank where you defaulted. If not, pay off your debts before applying for a new loan. Before approving a loan, financial institutions will do a credit check with CIBIL, Equifax, or Experian.

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Your Money: Opening a Fixed Deposit? Check these 5 parameters first

In India, the most common financial tool is the fixed deposit (FD). People typically invest in FDs to achieve financial goals such as home construction, car purchase, weddings, further education, and so on.

An FD can also assist you in effectively planning your retirement. However, Investors must consider a few parameters before opening an FD account to maximize their earnings. In this article, we are listing a few of the major considerations, that help you in effectively comparing the best FD for you.

Duration of Fixed Deposit

An FD’s duration is proportional to its interest rate. For example, the return on a 10-year fixed deposit is always higher than the return on a one-year FD. Short-term (1-3 years), medium-term (3-5 years), and long-term financial goals can all be met with FDs (5-10 years).

duration of fixed deposit

Interest rate

The best FD interest rates are now hovering around 6.70 percent, with elderly persons receiving a 0.25 percent higher rate. There are two sorts of interest rates: cumulative and non-cumulative. The invested amount is locked until maturity in the cumulative mode, and the accrued interest and principal are credited at the term’s end. You can earn a fixed interest amount every month, quarter, half-yearly, or annually in a non-cumulative manner. To receive the best returns, choose the correct type of FD when opening one.

Rating

CRISIL and CARE are credit rating agencies that issue ratings to financial institutions based on several factors. CRISIL FAA+ or CARE AA-rated financial institutions are regarded as the best. As a result, examine the credit rating of the financial institution to reduce your risks.

Loan facility

People typically request loans when they have an immediate financial need. However, when you open an FD, you automatically become eligible to take out a loan against it. These loans allow you to withdraw up to 75 percent of your investment at a 2% higher interest rate than the best (highest) FD interest rates currently available. The loan term is equivalent to the FD term in this scenario. As a result, if you invest in a 10-year FD and seek a loan in the second year, you will have eight years to repay the loan.

fixed deposit money

Financial institution : fixed deposit

All FDs are excellent, but not all financial institutions are. Before opening an FD account, research the financial institution’s characteristics and value-added services.

For more such updates, keep watching this space!

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Are you earning negative returns on your investments?

Every investor invests their money with an aim to earn profits on their investments. However, the rate of return for the investment may not always be positive. In fact, the risk of earning a negative return exists in every investment. Inflation can impact our investments, in such a way that even though you’re making money. But in a real sense, you will not be making a net positive return on your investments.

Money plant investment

What is Negative Return?

A negative return occurs when investors experience a loss in the value of their investments during a specific period of time. For example, if an investor buys $1,000 of Company XYZ stock and then sells it for $500, the investor has a negative return of 50%.

While negative return is a possible risk in a market-linked investment such as a mutual fund or direct share. Fixed-income investments such as bank fixed deposits also carry a different kind of risk. In a market-linked investment, there is a risk of losing a fraction of your investment when the value of underlying securities falls. In a fixed-income investment, the risk of losing capital may not be there (or it may exist in some), earning a negative return on your investment is not very uncommon.

How Fixed-income investments can fetch negative returns?

investment returns

The negative return risk is primarily a consequence of rising inflation. It pulls the returns lower than expected and thus impacting the final return to an investor. For example, if a bank FD offers a return of 6 percent per annum and inflation is also 6 percent, the net return is almost zero. Thus at times, when FD rates are lower or the inflation is higher, the investment ends up earning a negative return. While the capital invested is safe and secure, the effective inflation-adjusted return could be low or negative.

Should someone avoid investing in bank FDs?

Fixed-income investments are actually more suitable for those investors who are looking for capital preservation rather than to grow money. It is suggested to take a balanced approach in your investment portfolio. If security is what you’re looking for, sure, you can invest in FDs. However, it is advisable to not invest more than 30 percent to 40 percent of your capital in the FDs as they’re not giving the best returns. Instead, you should place your remaining investment capital in other high-yield assets. For instance, gold can act as a valuable asset in times to come.

For more such updates, keep watching this space!