For decades, Indians have relied on fixed deposits (FDs) to save their money. This investment option is popular because of its predetermined rate of interest, assuring investors guaranteed returns.
A large section of the population invests their hard-earned income in FDs. Banks, as well as non-banking financial companies (NBFCs) like Mahindra Finance, offer FDs.
When you open a fixed deposit, you invest a certain amount for a specified period. At the end of this tenure, you receive your principal and interest, which is compounded to provide you with higher returns. Alternatively, you can withdraw the interest at periodic intervals to substantiate your income.
Generally, premature withdrawal is not recommended; however, to meet an emergency, you can withdraw the money before its maturity by paying a penalty. This charge may vary among issuers. So, make sure to check the premature withdrawal penalty along with other fixed deposit eligibility norms before investing.
In the last few years, several financial institutions have failed or are under severe stress. The Reserve Bank of India (RBI) imposed moratoriums and withdrawal freeze for many of these institutions, which has made it difficult for investors to access their funds.
Relief for depositors provided by the Budget 2021
The Finance Minister has proposed to amend the Deposit Insurance and Credit Guarantee Corporation Act, 1961(DICGC Act), to allow depositors to withdraw up to INR 5 lakh in case the bank or financial institution is unable to temporarily provide the money. However, earlier, the depositor could make the amendment claim only if the financial institution had commenced liquidation procedure and its license was canceled.
The proposed amendment will offer relief to depositors who rely on fixed deposit interest rates to build wealth over the long term. In the past, depositors had to wait for a long time while the RBI decided whether to liquidate a failed or stressed financial institution or not.
If an investor deposits more than INR 5 lakh and the institution fails or is stressed, he or she can withdraw up to INR 5 lakh and will receive the balance post-liquidation or after the RBI lifts the restrictions.
The amendments to the DICGC Act will be advantageous as more investors are investing any surplus funds in deposits with competitive FD rates to tide through the uncertainty prevailing in the post-pandemic economy. To know more about different forms and tenures of FDs, visit Mahindra Finance’s website now!