|
A Time Deposit is an investment option that pays annual interest rates between 7.5 and 9 per cent, compounded quarterly, and is available through post-offices across the country.
INVESTMENT OBJECTIVES
How suitable are Time Deposits for an increase in my investment?
Time Deposits are suitable for capital appreciation in the sense that your money grows at a pre-determined rate. Unlike certain other investment options, where returns are commensurate with the risks, the rate of growth is also high, Time Deposits return a lower, but safer, growth in investment. Therefore, Time Deposits are one of the better ways to get a relatively high interest rate for your savings. The only condition is that they are bound for some specific period of time.
Are Post-Office Time Deposits Suitable For Regular Income?
No, Time Deposits are not meant for regular income. Since Time Deposits, as their name suggests, are time-bound, you get a lump sum (principal + interest) at the maturity of the deposit.
To What Extent Does The Time Deposit Protect Me Against Inflation?
Time Deposits are not the ideal investment option if the rate of inflation is either too high or is fluctuating beyond a limit. Since the rate of return in case of a Time Deposit is fixed, they cannot guard you against a high rate of inflation.
Can I Borrow Against Post-Office Time Deposit?
Yes, you can borrow against a Time Deposit. The balance in your account can be pledged as a security for a loan.
RISK CONSIDERATIONS
How assured can I be of getting my full investment back?
With a Government of India-backing, your principal is as assured as it is in any other post office account.
How assured is my income?
With backing from the Government of India, your interest income from Time Deposits is assured.
Are there any risks unique to investing in a Post Office Time Deposit?
No, there are no risks unique to this investment option. Only, if the rate of inflation is higher than your rate of returns, or in case the inflation is fluctuating too much, your real returns may be just modest. With a low coupon, your real returns will simply disappear during high inflation. So, while investing in a Time Deposit, keep in mind the prevailing inflation rate and calculate your real returns before opting for one.
Are Time Deposits rated for their credit quality?
No, Time Deposits, like any other post-office investment instrument, are not commercially rated since they are backed by the GOI and are extremely safe.
BUYING, SELLING, AND HOLDING
How do I buy a Time Deposit?
A Time Deposit account can be opened at any post-office.
What is the minimum investment and range of investment for a Time Deposit?
The minimum investment in a Time Deposit could be as low as Rs 50. There is no upper limit on investment.
What is the duration of Post Office Time Deposit?
Time Deposits have a term ranging between 1 and 5 years. The scheme pays annual interest, but it is compounded quarterly, thus giving a higher yield. Time deposit for 1 year offers a coupon rate of 7.5 per cent, a 2-year deposit offers an interest of 8 per cent, 3 years is 9 per cent while a 5-year Time Deposit offers 9 per cent return.
Can Time Deposits be sold in the secondary market?
No, Time Deposits can only be bought from a post-office and, on maturity, be encashed from there itself.
What is the liquidity of Time Deposit?
While 2, 3, and 5-year Time Deposits can be closed after one year, they entail a loss in the interest accrued for the time the account has been in operation.
How is the market value of Post Office Time Deposit determined?
Since a Time Deposit is not traded, it does not have a market value. Updates on your Time Deposit account can be had from the post-office where you have opened an account. Also, any changes in the interest rates are advertised through national dailies.
What is the mode of holding of a Time Deposit?
You can open a Time Deposit either as a single holder, or with a partner under a joint account. On opening a Time Deposit, you will receive an account statement stating the amount deposited and the duration of the account.
TAX IMPLICATIONS
Interest income upto Rs 9,000 from Time Deposits is exempt under section 80L of the Income Tax Act, 1961, and no tax is deducted at source, i.e., the interest income from a Time Deposit is also exempt from TDS.
|