Skillmarks management pvt. Ltd.

BANKING MODULE
CHAPTER: 3

PRODUCTS OF BANK: INVESTMENT POLICIES

What is a Fixed Deposit?
Fixed Deposit is an Investment Policy, offered Bank & NBFC (Non Banking Finance
Company),Where you can deposit money for a higher rate of interest than savings accounts.
You can deposit a lump sum amount in Fixed Deposit for a specific period, which varies
every financier.
From a other point of view it’s A Loan, which was given by customers to Bank & any NBFCs
(7 Days to 20 Years). After that Bank have to return the principal amount with a interest.

All Banks in India Offer fixed deposits schemes with a wide range of tenures for periods from
15 days to 10 years. These are also popularly known as FD accounts. However, in some
other countries these are known as "Term Deposits" or even called "Bond". The term "fixed"
in Fixed Deposits (FD) denotes the period of maturity or tenor. Therefore, the depositors are
supposed to continue such Fixed Deposits for the length of time for which the depositor
decides to keep the money with the bank. However, in case of need, the depositor can ask
for closing (or breaking) the fixed deposit prematurely by paying a penalty (usually of 1%,
but some banks either charge less or no penalty). (Some banks introduced variable interest
fixed deposits. The rate of interest on such deposits keeps on varying with the prevalent
market rates i.e. it will go up if market interest rates go and it will come down if the market
rates fall. However, such type of fixed deposits has not been popular till date).

Cumulative Interest vs Non-cumulative Interest: Choose from Cumulative FDs (where

interest is payable at the time of maturity) or Non-cumulative FDs (where interest may be
payable at monthly, quarterly, half-yearly or annual basis).

Rate Of Interest: Interest rate is always variable 4% - 7% (Simple Interest vs Compound

Interest) The rate of interest for Fixed Deposits differs from bank to bank (unlike earlier
when the same were regulated by RBI and all banks used to have the same interest rate
structure.
Example:

TENURE GENERAL SENIOR CITIZEN

7 days to 45 days 3.25 % 3.75 %
46 days to 179 days 4.25 % 4.75 %
180 days to 210 days 4.75 % 5.25 %
211 days to less than 12 months 4.75 % 5.25 %
12 months to less than 24 months 5.50 % 6.00 %
2 years to less than 3 years 5.50 % 6.00 %
3 years to less than 5 years 5.75 % 6.25 %
5.75 % 6.25 %
5 years and up to 10 years

**NOTE: Rate of interest (show in this table) is variable as per individual Bank
Example: COMPOUND INTEREST / Amount: 1,00,000/-, R.O.I: 6.00%, Tenure: 2 years
Deposit Date: 2/1/2000 2001 Mature Date: 1/1/2002
Deposit Amount: 1,00,000/- (DA) *1,00,000 X 6.00 % = 6,000/- (I) *1,06,000 X 6.00 % = 6,360 (i2)
Rate Of Interest: 6.00 % (ROI) 1,00,000/- (DA) + 6,000/- (I) 1,06,000/- (DA+I) + 6,360 (i2)
Interest: 6,000/- (I) = 1,06,000/- = 1,12,360/- (Mature Amount)
(DA + I) [(DA + I) + i2]

Example: SIMPLE INTEREST / Amount: 1,00,000/-, R.O.I: 6.00%, Tenure: 2 years

Deposit Date: 2/1/2000 2001 Mature Date: 1/1/2002
Deposit Amount: 1,00,000/- *1,00,000 X 6.00 % = 6,000/- (I) *1,00,000 X 6.00 % = 6,000/- (i2)
R.O.I: 6.00 % = 1,00,000/- (DA) + 6,000/- (I) [= 1,00,000/- (DA) + 6,000/- (I)] + 6,000/- (i2)
Interest: 6,000/- = 1,06,000/- = 1,12,000/- (Mature Amount)
(DA + I) [(DA + I) + i2]

We can do Fixed Deposits At:

• Nationalized Bank: SBI, PNB, BOI etc.
• Pvt. Bank: ICICI, Axis, HDFC etc.
• Small Finance Bank: Jana, Ujjivan etc.
• NBFC: Bajaj Finance, DHFL etc.

Types Of Fixed Deposits:

• Regular Fixed Deposit. (Less than 60 years)
• Senior Fixed Deposit (Age Limit: Above 60)
• Flexi Fixed Deposit.
• Tax Savings Fixed Deposit. (Lock in tenure of 5 years)
• Shareholder’s Fixed Deposits.

Tax Savings Fixed Deposit:

• 5-year lock-in period.

• Minimum investment of 10,000 and maximum of 150,000 for a duration of 5 years.
• No premature withdrawal and auto-renewal facility.
• Interest earned is taxable.
• FD allows only a one-time lump sum deposit

Different Between All Types Of Bank & Others Financial Corporations: (Fixed Deposit)
All Types Of Bank:
• Higher Interest
• Lower Security
• Loan Facilities Not Available
• Flexi FD not available

Others Financial Corporations:

• Lower Interest
• Higher Security
• Loan Facilities Available
• Flexi FD available
 What is Recurring Deposit?
Under these type of deposits, the person has to usually deposit a fixed amount of money every
month (usually a minimum of Rs,10/- p.m.). Any default in payment within the month attracts a
small penalty. However, some Banks besides offering a fixed instalment RD, have also introduced a
flexible / variable RD. Under these flexible RDs the person is allowed to deposit even higher amount
of instalments, with an upper limit fixed for the same e.g. 10 times of the minimum amount agreed
upon. These accounts can be funded by giving Standing Instructions by which bank withdraws a fixed
amount on a fixed date of the month from the saving bank of the customer (as per his mandate),
and the same is credited to RD account. Recurring Deposit accounts are normally allowed for
maturities ranging from 6 months to 120 months. A Pass book is usually issued wherein the person
can get the entries for all the deposits made by him / her and the interest earned. Banks also
indicate the maturity
Rate Of Interest 6% - 8%
Time: Min. 6 Months to 10 Years (Multiple 3 month)
Minimum Balance: 10/- (Depends on Bank)
The main features of Recurring Deposit account are as follows:
• Recurring Deposit schemes aim to inculcate a regular habit of saving among the public.
• Minimum amount that can be deposited varies from bank to bank. It can be an amount as
small as Rs.10.
• The minimum period of deposit starts at six months and the maximum period of deposit is
ten years.
• The rate of interest is equal to that offered for a Fixed Deposit and is hence higher than
any other Savings scheme.
• Premature and mid term withdrawals are not allowed. However, the bank may allow to
close the account before the maturity period, sometimes with a penalty for premature
withdrawal.
• RD offers the additional benefit of taking loan against the deposit, i.e., by using the
deposit as a collateral. About 80 to 90% of the deposit value can be given as loan to
the account holder.
• The Recurring Deposit can be funded periodically through Standing Instructions
which are the instructions given by the customer to the bank to credit the Recurring
Deposit account every month from his/her Savings or Current account.
Recurring Deposit: Eligibility Criteria
• Any individual.
• Any minor who is above 10 years of age is eligible to open a recurring deposit account if
he or she provides proof of the name.
• Any minor who is below or equal to 10 years of age under the guardianship of natural or
legal guardian.
• Any corporate, company, proprietorship or commercial organisation.
• Any government organisation.
 Recurring Deposit: Documents Required
• Application form which can be obtained from the bank you select to open the recurring
deposit account in.
• Passport size photographs of the applicant.
• Identity proof and address proof of the applicant willing to open the recurring deposit
account.
• KYC documents if the bank requests for it.

➢ For Annual Income of Less than Rs.2.5 Lakh: For people earning less than Rs. 2.5
Lakh per annum, the TDS applicable is 10% of the interest earned on the recurring
deposit account if the interest earned on the principal amount exceeds Rs.10,000. To
avoid any payment of tax on the interest, it can be done so by claiming refund of the
TDS deducted. This can be done by submitting Form 15G to the income tax
department.
➢ For Annual Income between Rs.2.5 Lakh and Rs.5 Lakh: For people earning an
annual income ranging between Rs.2.5 Lakh to Rs.5 Lakh, the TDS applicable is 10%
of the total income earned as interest on the principal amount in the recurring
deposit account although it should exceed Rs.10,000.
➢ For Annual Income between Rs.5 Lakh and Rs.10 Lakh: For people earning an
annual income ranging between Rs.2.5 Lakh to Rs.5 Lakh, the TDS applicable is 10%
of the total income earned as interest on the principal amount in the recurring
deposit account although it should exceed Rs.10,000. The income tax to be paid by
the person earning an annual income between Rs.5 Lakh and Rs.10 Lakh is 20% of
the total income. The bank will deduct only 10% TDS which means when the person
files the ITR, tax has to be paid at the rate of 10.3%.
➢ For Annual Income between more than Rs.10 Lakh: For people earning an annual
income ranging between Rs.2.5 Lakh to Rs.5 Lakh, the TDS applicable is 10% of the
total income earned as interest on the principal amount in the recurring deposit
account although it should exceed Rs.10,000. The income tax to be paid by the
person earning an annual income between Rs.5 Lakh and Rs.10 Lakh is 30% of the
total income. The bank will deduct only 10% TDS which means when the person files
the ITR, tax has to be paid at the rate of 20.6%.
What is Provident Fund (PF)?

As compulsory, government-managed retirement savings scheme, Provident Fund enables

employees to contribute a part of their savings each month towards their pension fund.
Over time, this amount gets accrued and can be accessed as a lump sum amount, at the end
of their employment or at retirement. The Provident Fund money is a huge amount that
helps you grow your retirement corpus.

There are mainly three different types of PFs, which include the following:

• The General Provident Fund is a type of PF which is maintained by governmental

bodies, including local authorities, the Railways and other such bodies. Thus, these
types of PFs are mainly defined by the government bodies.

• The Recognized Provident Fund is the one which applies to all privately-owned
organizations that contain more than 20 employees. Moreover, holding a rightful claim
to the PF associated with your organization, you will be given a UAN or Universal
Account Number. This enables you to transfer your PF funds from one employer to
another whenever you move from one occupation to another.

• The Public Provident Fund is defined by the voluntary nature of investment on the part
of the employee. The PPF is also associated with a minimum deposit of INR 50 and a
maximum amount of Rs. 1.5 lakhs. This PF also comes with a pre-determined maturity
period of 15 years, only after which any form of withdrawal can be done from the
account.

While Provident Funds are low-risk investment avenues that can help you grow your money
easily, it is important to invest the PF funds in smarter investment avenues that enable you
to grow your funds furthermore.
What is PPF (Public Provident Fund)?

A PPF or Public Provident Fund is a tax-free savings scheme offered by the Government of
India, wherein interest on the account is set for every quarter and is paid by the
government.

Eligibility Criteria:

• Any individual who is a resident of India can only open a PPF account
• NRIs are not eligible to open PPF accounts. However, a resident Indian who has
become an NRI after opening a PPF account can continue the account till maturity
• Additionally, parents/guardians can also open PPF accounts for their minor children
• Opening of joint accounts and multiple accounts are not allowed

PPF Tenure:
PPF account matures after the expiry of 15 years from the end of the financial year in which
the account was opened. For example, if the PPF account was opened on Jan 1, 2010, it will
mature on March 31, 2025, i.e. 15 years from March 31, 2010. At maturity, you can extend
the PPF account indefinitely in blocks of 5 years at a time.

Minimum and Maximum Contribution:

The minimum annual contribution that can be made to a PPF account is Rs. 500 while the
maximum is capped at Rs. 1.5 lakh. The maximum limit applies to contributions made by a
person for himself and for a minor child, both. There can be a maximum of 12 contributions
in a year.

How to open a PPF account:

PPF accounts can be opened at nationalized banks and major private banks such as ICICI and
Axis Bank. In several banks like ICICI and Axis Bank, you can also open a PPF account online
through net banking even Post Office Also. Once the account is opened, a passbook similar
to the bank passbook recording all transactions such as subscriptions, interest, withdrawals,
etc. will be issued. However, some other banks simply allow PPF entries to be viewed online
instead of issuing a passbook.

Documents Required:

1. PPF account opening form (Form A) can be obtained from specified bank branches or
can be downloaded online.
2. ID proof
3. Address proof
4. Photograph of the account holder
5. Nomination form
Maturity of Account:

PPF account matures after a period of 15 years from the end of the financial year in which
the account was opened. At the time of maturity, the account holder has three options:

Withdrawal of maturity amount: The account holder can withdraw the PPF amount along
with the interest accrued thereon. The entire maturity proceeds are exempt from tax.

Extension of PPF with contribution: A subscriber can extend the life of the PPF account
indefinitely in blocks of 5 years at a time. The subscriber has to submit a request to extend
the account, with further contributions by submitting Form H. The choice of extension with
contribution has to be made within one year from the date of maturity, otherwise the
default choice of extension without further contribution applies. Once the account is
extended with contributions, maximum 60% of the balance as on the date of extension of
the account can be withdrawn. This amount can be withdrawn in one go or can be spread
over several years. A maximum of one withdrawal can be made in a year.

Extension of PPF without further contribution: If no choice is made, then the default
choice, .i.e. extension without further contribution applies. You do not need to fill any form
to choose this option. A maximum of one withdrawal is allowed per year and any amount up
to the total balance in the account can be withdrawn.