Who should invest in 'FD Invest'?
The volatility in the equity, as well as the debt market, is bringing innovation to products offered by the banking sector. On February 6, 2019, ICICI Bank announced the launch of ‘FD Xtra’, a range of innovative Fixed & Recurring deposits. The new unique term-deposits have been specially designed to meet the life-stage needs and goals of customers.
Termed as ‘FD Invest’, a customer can invest the interest earned on fixed deposits in monthly Systematic Investment Plans (SIPs) of a mutual fund of their choice from ICICI Prudential Asset Management Company. The minimum amount that you need to invest is Rs. 2 lakh for a minimum tenure of one-year. The benefit of the ‘FD Invest’ is that it protects your principal and at the same time gives customers an opportunity to earn an enhanced rate through investing in mutual funds.
The bank as timed the launch of this product very appropriately. First, the volatility in the market has led many investors to lose their principal investment, this product at least gives them the assurance that their capital remains intact. Second, in the interim Union Budget, the finance ministry has also proposed to hike the TDS (tax deducted at source) threshold on fixed deposit and other savings to Rs. 40,000 from Rs. 10,000, which will further attract customers to such products.
This product is useful for those investors who are investing for a short-term duration, say less than three years to fulfil their goals. Instead of investing in debt funds they can use this product to park their money and interest can be invested in mutual funds depending upon their goal and how far in the future is that goal. If goals are such that you cannot take risks, you can invest in liquid funds and if you can take some amount of risk, you can also go for equity funds.
Our analysis shows that you can earn up to Rs. 5,300 extra by investing the interest in debt fund offering 8 per cent of return. It is assumed that you have done FD of Rs. 2 lakh and the interest rate that you earn is 7 per cent.