People are seeking secure investment solutions that also yield them appealing returns in the aftermath of declining interest rates and pandemics. National Pension Scheme (NPS) and Fixed Deposit (FD) are two of the most popular investment solutions for customers who want to meet these criteria. Continue reading to learn more about both and to identify the things about NPS that apply to Fixed Deposits.
What is a Fixed Deposit?
A Fixed Deposit (FD) pays interest on funds that are locked in for a specified term. When you make a fixed deposit, you invest a set amount of money for a set length of time. The sum is then locked, and you will only get your principal and interest after the FD has matured, or when the investment duration has ended. An FD’s duration might range from seven days to twenty years, with distinct FD rates for each period.
What is National Pension Scheme?
The National Pension Scheme (NPS) is an Indian voluntary contribution pension scheme. The government-sponsored pension plan allows you to invest for the long term in preparation for retirement. The Pension Fund Regulatory and Development Authority (PFRDA) and the federal government are in charge of the investment strategy. The National Pension Scheme is an EEE (exempt-exempt-exempt) instrument, which means the full amount is tax-free from the time of investment to the time of maturity.
Many individuals want to know which is the best option when it comes to choosing between FD and NPS. Here’s a closer look at the features of FD and NPS.
Features and benefits of Fixed Deposits
There are several benefits to keeping a fixed deposit. Beyond the strong return on money, there are 5 advantages of FDs that make them a desirable investment option.
- Assured Returns
Investing in fixed deposits, unlike other products such as equities stocks, offers assured returns. The Union government guarantees fixed deposits, so investors may be certain that their money will be returned even if their bank goes bankrupt.
- Overdraft Facility
Customers who have a savings account with a bank are eligible for an overdraft. Customers can utilize the service to cover their immediate monetary needs in the event of an emergency.
- Long-term Financial Goals
It is a good, risk-free investment option that you may use to grow your corpus over time to accomplish a certain goal.
- Easier to take loans
Many banks and lenders will agree to provide you with a loan if you have a fixed deposit with them or elsewhere.
- Encourages Savings
While everyone understands the need of saving, not everyone can save as much as they should. Investing in a fixed deposit, on the other hand, insures saves since a substantial amount of money is locked up for a fixed tenure of time.
- Tax Exemption
Tax advantages are also available when investing in fixed deposits. Customers can claim tax exemption for investments made in FDs via tax saving plans under Section 80C of the Income Tax Act, 1961.
- Insurance and Healthcare
Many banks are giving free insurance plans and other health care advantages in addition to their investment schemes to get people to invest in FDs.
- Ease of Managing FD investment
Customers may now manage their banking more easily thanks to the internet. They may now manage their finances using a phone or a laptop that is connected to the internet. Unlike in the past, creating an FD account and investing money does not involve a long official process, and bank customers may make GD investments through online banking in a matter of minutes.
Features and benefits of National Pension Scheme (NPS)
Investing in NPS has several characteristics and advantages. Here are some of the most important NPS advantages that come with your investment.
- Liquidity
Tier-I and Tier-II accounts are the two sorts of accounts that may be used to contribute to NPS. Each of these accounts has a lot to offer and may be used for a variety of reasons.
- Tier-I: This is a default account type that does not allow withdrawals. Everyone who chooses the NPS plan must have a Tier-I account.
- Tier-II: This is a sort of account that allows withdrawals voluntarily. The minimal donation to the NPS is ₹250.
- Flexibility: NPS provides you control over your plan by allowing you to determine the amount of money you want to invest. You can choose auto-choice, in which case your money will be managed by a fund manager. You may also actively choose the asset classes in which you want to put your money.
- Withdrawal: The NPS is a good way to save money for your post-retirement life. After just three years, you can withdraw a portion of your whole NPS corpus if necessary.
Final Thoughts
Although the National Pension Scheme is one of the greatest long-term investing alternatives, it is not suggested for short-term investments. You may get the best of both worlds by investing in FDs since they provide a choice of options for achieving both short- and long-term objectives.
