5 ways how fixed deposits can help you save money

A fixed deposit is an investment option that provides a higher interest rate for keeping your funds blocked for a particular period of time. Fixed deposit schemes are available for as low as 7 days to 7 years, in varying periods of time. Depending upon your fund requirements, you can open multiple fixed deposits that mature at different points of time, and provide you funds with interest.

The amount put in a fixed deposit account is locked in till the time the fixed deposit matures. This means, unlike a savings account where money can be withdrawn at any period of time, the amount that you invest in a fixed deposit is locked in and cannot be accessed till the time it matures. It is possible to break the fixed deposit in case of emergency, but most banks charge a penalty for doing that.

A fixed deposit is crucial because it not only earns interest income but also saves money for the person opening a fixed deposit account.

Here are 3 ways fixed deposits can help you save money:

1. It can be opened for amounts as low as Rs. 1,000:
Fixed deposits command a higher interest rate than savings accounts. This makes it beneficial to park funds in them, even if the amount is low. Since fixed deposits can be opened for amounts as low as Rs. 1,000, you can park funds in multiple fixed deposits of short durations, to earn extra income. Opening a fixed deposit will also help you save money and earn interest income on it, as compared to spending it on discretionary items.

2. Tax deductions:
Investment in certain tax saving fixed deposits gets a deduction under Section 80C of the Income Tax Act. Many banks have tax saver fixed deposit schemes. If you invest in these schemes, you can get a deduction in Income Tax up to Rs. 1.5 lakhs. 

Depending on your investment in other tax saving instruments, such as life insurance, Public Provident Fund, National Savings Certificate, you can invest a suitable amount in tax saving fixed deposits.

3. TDS is deducted only if interest is above Rs. 10,000:
Banks deduct TDS on your fixed deposit account if the yearly interest crosses Rs. 10,000. Till the time this limit is reached, no TDS is deducted. You can open a small fixed deposit and earn interest on it without having tax deducted. However, the interest earned on fixed deposits has to be considered in the total income at the end of the year. That means you have to pay tax on fixed deposit interest income. The only benefit is no tax will be deducted on it in advance.

5 reasons why college students should have a credit card

College students are young adults who are starting their lives. A college student may or may not be studying in his hometown, which is why it is beneficial to have a credit card. There are many different types of credit cards, and depending on the expenses that a college student incurs, the best card can be chosen.

A credit card is a way to spend without immediately paying for it. The money spent is due to be paid monthly to the credit card company. To many people, owning a credit card before they take a job is foolish. But there are benefits of giving a college student a credit card.

Here are 5 reasons why college students should have a credit card:

1. Helps to establish a credit history:
Regular transactions and repayments on credit cards help to establish a credit history with the credit card company. After a period of time, the college student will become eligible for those types of credit cards that will give him better offers, such as cashbacks, easier loans, insurance cover, discounts on bill payments, and the like. Also, these regular transactions build up the student’s credit score, which helps later on in life while applying for loans.

2. Teaches college students about financial prudence:
One of the most important reasons why a college student should be given a credit card is so that they learn how to spend and save. Though it might be tempting for the student to spend the entire credit limit, with proper guidance, the student can learn the importance of spending for the right reasons and saving the rest in case of emergency. Some of the best credit cards in India offer student variations of their cards which are linked to their parents cards.

3. Helps to avail cashback and credit card points:
Regular transactions with credit cards builds up credit card points which can be redeemed for a range of transactions, such as airline miles, reward meals, and other benefits. Some of the best credit cards in India offer upgrades and fee waivers to loyal customers.

4. Helps to provide cash in emergencies:
Having a credit card can help to provide cash in case of emergencies. Cash can also be loaded on the card in case the limit has been reached. This provides security to the college student to spend up to a certain limit in case of problems.

5. Can take loans against credit cards for big purchases:
There are different types of credit cards that offer loans on purchases, especially on consumer durables. These purchases can be converted to EMI so that it can be repaid gradually. This also teaches college students how to save.

Unified Payments Interface – All you need to know

After demonetisation, the focus was on digital payments, especially payments made through your mobile phone. To simplify this process, the National Payments Corporation of India (NPCI) introduced a seamless fund transfer mechanism called Unified Payment Interface (UPI).  Unified Payment Interface allows transfer of money between two bank accounts using the sender and recipient’s smartphone.

The UPI payment system works using the Instant Payment System or IMPS form to debit money directly from the sender’s bank account and deposit money directly into the receiver’s bank account. Transacting via Unified Payment Interface does not require bank account and IFSC code to operate. This makes it simpler to manage payments.

How is it different from other payment methods?

UPI can be used to pay money to individuals and also to merchants who accept UPI payment for their goods and services. Presently, if you want to make a payment to anyone, you need his or her bank account details along with the IFSC code of the branch. This sensitive information has to be given out repeatedly to receive payments. The UPI payment system eliminates need for using a bank account and IFSC code.

Under Unified Payment Interface, you can create a unique ID by linking your email, bank account number and IFSC code. This ID will be unique to you, since it is a combination of your name, and the name of the bank. You can choose the name that will appear in your ID, thus avoiding duplication.

If you want to make payments using UPI, you just have to share your UPI ID with the person. There is no need to share sensitive banking details.

How can I start with UPI:

To begin using Unified Payment Interface, you need to download the BHIM app. Most banks also have their own BHIM apps, for example, HDFC, ICICI, Axis Bank, SBI, etc. have linked to BHIM. There are other apps such as Google’s Tez, PhonePe etc, which also work on the UPI payment system.

To begin using the UPI app, you need to register. While registering, you need to create a unique UPI ID. This ID will be linked to your email account and is editable. You can choose whatever you want this ID to be and it will be linked to your bank.

After this registration is done, you will need to set a UPI pin. This pin will be used to confirm transactions before they are executed.

How do I make a payment?
To make a payment, you click on ‘Make A Payment’ in the app. To make a payment, add the UPI ID of the recipient and confirm with your PIN. The money gets transferred automatically and immediately to the recipient’s account.

Bank loan and its types

A bank loan is one of the most popular ways to raise funds for different needs. Loans are typically of a longer duration and are repaid with interest. It is very common for a borrower to pay back the loan in installments. Each installment comprises of principal and interest and is repaid over a fixed duration.

The types of bank loans in India are:

1. Personal loan:
A personal loan is an unsecured loan. These bank loans are quickly disbursed and have a repayment period up to 5 years. Since these loans are high risk, the rate of interest is higher.

2. Home loan:
A home loan is one of the most popular loans in India. The funds are used to purchase a house. This is a secured loan, i.e. the bank secures the house purchased. The loan amount is given for a pre-decided percentage of the house value.

3. Consumer durable loan:
This bank loan is available for borrowers who want to buy consumer durables. Some banks even give up to 100% financing for purchasing these electronics.

4. Car loan:
This loan is available to people who want to purchase a new car. The new car acts as the security for the loan.

5. Two wheeler loan:
This loan is similar to the car loan, except that the two-wheeler purchased is the security for the loan.

6. Business loan:
These are unsecured loans meant for business expenses and working capital needs.

7. Loan against property:
This bank loan is availed by mortgaging property. The value of the property is assessed based on market rates.

8. Educational loan:
These bank loans are taken for higher education, whether in India or abroad. These loans have a moratorium, which means repayment begins a number of years after taking the loan.

9. Loans for professionals:
These are loans similar to business loans given to professionals like doctors, accountants etc.

10. Overdraft against salary:
This loan is given against salary accounts.

11. Gold loan:
This loan is given out based on the value of gold mortgaged with the bank. These loans don’t have a specified end use for funds.

12. Loan against assets:
These are loans given out against assets such as securities and rental receivables.

13. Government sponsored loans:
These are loans sponsored by different Government schemes. These loans can be availed for Rs. 5,000 too.

14. Rural loans:
These loans are given to farmers to fulfill their requirements.

15. Loan against securities:
These are loans given against shares, or government securities. These funds can be used for any purpose.

16. Loan on credit cards:
This loan provides an option to convert a large credit card purchase into a loan for simpler repayment.

All you need to know about FCNR account

Investing in India can be very risky for a non-resident because of the volatility in the exchange rates. With constant fluctuation in the rates of Indian rupee, it may not be beneficial for a non-resident to maintain accounts in India in Indian Rupees.

A Foreign currency account provides a secure option for non-residents to earn income in India without the risk of currency fluctuation. Some of these foreign currency accounts are:

1. Foreign currency non-resident (FCNR) account:
This is a foreign currency account where NRIs can deposit their foreign funds and earn interest income. It is like a fixed deposit account.

2. Resident foreign currency (RFC) account:
This foreign currency account is for returning NRIs who have permanently settled in India. It allows them to convert foreign exchange into Indian Rupees when they want.

What is FCNR account?

1. This foreign currency account is a fixed deposit account. It can be opened by:

• Depositing foreign currency or travellers cheques
• Transferring funds from abroad in freely convertible foreign exchange
• Directly remitting funds to the bank via wire transfer
• Transferring the amount from other FCNR accounts in other banks

2. Funds in an FCNR account can be in 6 international currencies:

• US Dollar (USD)
• British Pound (GBP)
• Euro (EUR)
• Japanese Yen (JPY)
• Australian Dollar (AUD)
• Canadian Dollar (CAD)

3. The funds in an FCNR account can be locked in for a particular period of time. Interest rates differ based on the time period for which they are invested. The minimum deposit tenure is 1 year.

4. The minimum initial deposit for FCNR account for various currencies is:

• USD = $1000
• GBP = £ 2,500
• EUR = € 2,500
• JPY = ¥ 7,50,000
• AUD = A$ 1,000
• CAD = C$ 1,000

5. Funds from an FCNR account can be repatriated on maturity, or it can be transferred to an NRE account. There are no limits on repatriation of funds.

6. The interest earned on FCNR deposits is tax free in India. However, it may be taxable in the country where the NRI is residing.

7. An FCNR account can be opened jointly with other NRIs. It is not possible to open an FCNR account with resident Indians.

8. Funds from an FCNR account can be used to open an NRO/NRE account.

9. It is possible to obtain a loan on the FCNR account balance. This loan can either be in Indian Rupees or in foreign currency. The loan can be obtained for any purpose other than:

• Relending
• Agriculture
• Real estate investment

10. It is possible to withdraw money from an FCNR account before the deposit matures. Some banks may not pay interest if the deposit is withdrawn before completion of 1 year.

5 steps to getting business loans

A business loan is a loan taken for the following purposes:

• Personal expenses
• Business expansion for example hiring more staff, investing in technology, purchase of assets
• Working capital needs
o Short term
o Medium term

A loan for business is an unsecured loan, where lenders sanction amounts up to Rs. 50 lakhs without security. These funds don’t come with any preconditions attached to the use of loans.

A major reason for availing this loan is the business loan interest rate. Business loans are given at lesser interest rates as compared to personal loans, and yet they offer similar if not more flexibilities. Getting a business loan takes a little more effort than a personal loan, but following these steps will ensure you can best utilize loan funds for the business. It will also ensure the business loan interest rate is the best.

Here are 5 steps to getting business loans:

1. Estimate the fund requirement:
The first step to getting a business loan is to estimate the funds that will be required. Whether it is for business expansion or for purchase of assets, knowing the amount that the business needs is the most essential part. There is no point in taking a loan for business and realizing the funds are short of the requirement.

2. Prepare a business plan showing where the funds will be used:
This document will be very useful in ensuring you get the loan for business. Estimating the requirement of funds is the first step, but if the loan funds are to be used for a variety of purposes, it is essential to prepare a document showing their usage over a period of time. This will show the lender that you intend to use the funds judiciously.

3. Check financial health of the business:
Before availing a loan, it is important to check whether the business has the capability to repay the loan. It is not advisable to use business loan funds for assets that take a longer term to generate returns. This will lead to capital getting blocked. It is better to take a loan when the business has some free funds to repay the loan as per the schedule.

4. Collect the required documents:
After estimating the fund requirements, the next step while applying for a loan for business is to collect the required documents. This means identity proofs, address proofs, income tax returns, business accounts, etc. The lender will use these documents to assess the loan amount.

5. Find the right lender:
Finding the right lender will depend on the business loan interest rate and other charges, you can select the lender and make the loan application.

7 things you must know about PPF

Public Provident Fund is an important savings instrument in India. It is the go-to investment for many individuals because of its tax advantages. But before investing in PPF account, you must evaluate whether it is suitable for you.

Following are the 7 things you should know about PPF:

1. It is an Exempt-Exempt-Exempt (EEE) form of investment:
The tax on an investment is considered at 3 different times:
a. On investment
b. When the investment earns income:
c. On maturity

Public Provident Fund has tax benefits at all three stages.
• Investment in PPF scheme gets a tax deduction up to Rs. 1,50,000 under Section 80C of the Income Tax Act
• Interest earned on PPF is exempt. Exempt incomes are not considered as taxable income of the individual.
• Withdrawals from PPF account after maturity are exempt as well.

This makes PPF an excellent investment since the incomes do not incur any tax. The interest on the PPF account is compounded, and hence a sizeable investment over a period of time can earn a substantial sum. This amount is wholly exempt which provides more funds in your hands, especially if you avail it at retirement.

2. The PPF lock in period is 15 years:
The minimum lock in period for PPF account is 15 years. After the period of 15 years, you can renew the account for 5 years at a time. There is no restriction on the number of times the account is renewed.

3. The minimum deposit every year is Rs. 500/-
To keep the PPF account active, a minimum amount of Rs. 500 must be deposited. You can deposit a maximum of Rs. 1.5 lakhs every year in a maximum of 12 installments. 

4. You can take a loan from your PPF balance:
You can avail loan facility from your PPF account after the third year up to the fifth financial year. For example, if you opened your account in 2010, the lock in period would start from 31st March 2011. You will be eligible for a loan on 31st March 2014, for the next 3 financial years. The interest on this loan is 2% above the PPF interest rate.

5. PPF allows partial withdrawal of up to 50%:
When funds are needed, you can withdraw up to 50% of the balance in PPF account. This facility becomes available after the 7th financial year.

6. The PPF interest rate depends on the Government bond rate:
The Government declares the PPF interest rate every quarter.

7. PPF is backed by Government of India and cannot be attached:
PPF scheme is fully guaranteed by the Central Government. The courts cannot attach it in proceedings. However, the Government can attach PPF account to recover taxes.