Investment in Term Deposits

Term Deposit means investing your money in a Bank or any financial Institution for a specified period of time to receive a fixed rate of interest on maturity of the deposit period. Term Deposit is also known as Time Deposit, Fixed Deposit or CD (Certificate of Deposit). A term deposit usually offers a higher rate of interest than a Savings Account. Term Deposits are suitable for Individuals with low-risk profile as the return is guaranteed and also due to the fact that it can be insured. The Investor can be confident that his money is safe and secured in the Bank.

 

When you invest in Term Deposits you do receive a “Certificate of Deposit” as a proof for the Investment. The investment period in Term deposit is usually 3 months, 6 months, 1 year, 3 years, 5 years etc. The amount of interest is payable monthly, bi-annually or annually based on the Term deposit conditions. Some Banks may offer cumulative plan for long-term investments where your accrued interest is re-invested along with the principal amount for subsequent years. It is also possible to pledge the Certificate of Deposit for money in times of financial crisis.

 

The interest rates offered by Bank may be variable depending on the economic conditions. For instance when the liquidity is low the Banks may attract investors by offering High Interest rates for deposits. The Banks lend the money received from Term depositors to borrowers in the form of Personal Loan, Educational Loan, Auto Loan or Home Loan etc. The Bank makes it profit by charging a higher interest rate for borrowers than the one promised to the Term depositors. However the Bank cannot offer 100% of the money to lenders. It has to follow certain policies laid out by the Central Bank from time to time.

 

Advantages of Term Deposits

Investing your money as Term Deposit in Bank is safe and secured. It offers a guaranteed rate of interest upon maturity of your Deposit. It helps to meet your future expenses or fulfill your wish lists (home, car etc.). Unlike the close-ended mutual funds where you cannot withdraw your money for a specified time, it is possible to withdraw the deposited money by paying a penalty fee (premature withdrawal). Some Term Deposits usually the long term plans offer Tax benefits to the investors. You can save your hard earned money and at the same time reduce your tax burden.

 

Disadvantages of Term Deposits

The returns in Term deposits are lower while compared to other types of investment plans like mutual funds or stocks. Based on your local laws you may have to pay tax for interest earned through Term Deposits. There is a fine for pre-mature withdrawal of Term Deposits. Some Banks offer “auto-renewal” facility on Term Deposits and reserve the right to renew the deposits for further time without informing you (at the time of maturity) as you may have authorized to do so while depositing the money. As your funds are locked in for a specified period of time you may not be able to utilize your money at the time of need.

Financial Planning

Financial Planning refers to the process of assessing your current financial conditions and plan to efficiently save money to meet your future expenses or your financial goals. A proper financial planning is very essential for any Individual or Business to reach his/its personal/ business (financial) goals. It would help you to properly manage your money and save wisely for future.

 

Financial Planning for Individuals

A proper financial planning helps an Individual to learn about his future expenses and save money to meet those financial obligations. The planning may differ from one person to another based on his financial goals and risk level. For instance a person who falls under the low-risk level can invest in fixed rate deposits in Bank/ Post Office etc. On the other hand a person with high risk capacity can resort to mutual funds/ equity funds where the return is not fixed.

 

Financial Planning for Businesses

Financial Planning plays a vital role in running a successful Business. It helps a business to identify its assets/ cash in hand, liabilities, future expenses etc. and how to properly allocate funds to meet those expenses. Without a proper financial plan a Businessman will find it difficult to meet the expenditures and may end up in losses.

 

Seeking the service of a Financial Planner

 

A Financial Planner is a qualified person who identifies individuals’ future expenses and advises a strategy that would help them to meet their financial goals. Some of the common financial goals may be as follows:

 

a) Saving for your marriage expenses

b) Retirement Planning

c) Buying your Dream Home

d) Investing for your Child’s Education

e) Reducing your Tax Burden thru appropriate Investments

f) Insurance Planning

 

A Financial Planner may charge a fixed fee (consultation fee) or provide free consultation and receive commissions based on your Investments. Before consulting any financial planner find out about their experience level (years of service) or credentials (happy clients). The best option would be to approach a well known financial planning agency in your locality or also the one recommended by your friends. A new consultant may not be able to match the services of a veteran. Disclose your financial obligations clearly which would help the financial planner to offer a proper advice. Ask questions whenever required to clear off your doubts.

 

A Financial Planner who charges a fixed fee will be in a better position to suggest various Investment Ideas while compared to the one who receives commission based on your Investments as he might try to convince you in selling their financial products.

Property Investment and Management

Investing smartly on a property is a great way to make money or enhance your asset class. Finding a right property for investment would be a critical task for a newbie. If you have sufficient money with no immediate expenses you could deploy your money by investing on a Property. This would help you to increase your net worth as the purchased property’s price would increase significantly as the years pass on.

 

When you own a property it not only eliminates the rental expense but also helps you to get a loan at the time of financial crisis by pledging your property as a collateral security. There are many Banks that offer Home Loan which means you could afford for a property without having the entire purchase amount with you. Home Loans are very useful as you can repay the loan amount through fixed installments in few years (5, 10, 20 or 25 years). You need not wait until you entirely save the money for purchasing the property because the property value would possibly increase as years pass on. You could also avail the tax benefits available for Home Loan payers.

 

Before purchasing any property you should find the potential growth in that area, demand for rental homes and property sales. If you do not have enough knowledge you could very well consult a Real Estate Agent who would be in a better position to assist you. You can buy properties when it is available for cheap price. But you should find out whether this is because of the market sentiments or some other factors. Some seller might be in urgent need of money and would accept a fair price. A smart buyer should not miss an opportunity like this.

 

Buying a property in developing areas would fetch good returns. As the area’s infrastructure improves the land value would also go up. An area well connected to railroads, buses, hospital, shopping complexes and offices would be an ideal place to buy Property.

 

You can buy property through the following sources:

a)     References from Friends or family members

b)    Real Estate Broker

c)     Classified Ads in Newspaper, Internet or TV

d)    Auction of Home or Land

e)     Buy directly from the seller

 

Once you have bought a property you could either rent it or develop it. It all depends on your choice. If the prices move rapidly in the next few years you could think about selling it and then buying another property in some other area.

 

Property management involves the process of general maintenance of a home, land or estate, receiving rents in behalf of the owner, letting the property to a tenant. There are lots of Real Estate firms that offer property management services. If you own numerous properties and you are busy with your own schedule you could seek the services of a property manager who would charge a fixed rate or variable rate based on the rent collected. Property management includes not only Residential Properties but also Office space, Commercial complexes etc.