FIXED DEPOSIT (FD) or TERM DEPOSIT ( TD ) AS INVESTMENT TOOL :

In deposit terminology, the phrase Term Deposit refers to a savings account or certificate of deposit that pays a fixed rate of interest until a given maturity date. Funds placed in a Term Deposit usually cannot be withdrawn prior to maturity or they can perhaps only be withdrawn with advanced notice and/or by having a penalty assessed.

A Fixed Deposit, also called Term Deposit, is an investment route that provides a regular stream of income for investors, very appealing to conservative, low-risk investors. Fixed deposits involve investing a particular sum of money with a bank or a financial institution or even a company; this investment is in the form of debt. There is a particular rate of interest that is paid on these fixed deposits for a specified period of time. At the end of the specified time period, the interest payment ceases and the original amount that is invested is returned to the investor. Looking at the nature of the investment, this is a route that is suitable for all those who prefer keeping their investments safe and secure. The other reason for selecting a fixed deposit over other investment routes is to generate a regular income from the investment, which provides an element of stability to the money invested.

Depository institution (such as a bank, credit union, or a finance or insurance company) account that pays higher than savings account interest rates but imposes conditions on the amount,frequency,and/or period of withdrawals with the understanding that the customer can withdraw only by giving advanced notice. A certificate of deposit (CD) is normally issued for fixed deposits.

Fixed Deposit can be taken for minimum 7 days to maximum 120 months.

ADVANTAGE:

1. High rates of interest on your money throughout the fixed term.
2. Guaranteed returns.
3. They are comparatively a very safe investment.
4. Investment time can be controlled as per requirement.
5. You really can’t go wrong if you have a sum of cash and want to invest it as you’ll know exactly what you’ll get back at the end of the fixed term and if you don’t want to put it all into just the one term you can opt for the “ladder” strategy. This means investing in several term deposits with varying maturity dates.
6. Each depositor in a bank is insured upto a maximum of Rs.1,00,000 (Rupees One Lakh) for both principal and interest amount held by him.
7. For 5 years deposit, individual can claim tax benefit.

DISADVANTAGE:

1. The basic downside of investing your money in a term deposit is that you cannot access it during the investment period.
2. In the case of an emergency you could cancel the term before the maturity date but you need to be very sure that you can afford to lock up your savings. Also, the longer you lock your money away,the better it is going to perform so weigh that up against the possibility that you may need to access some or all of it before the term ends.
3. Term Deposit or Fixed Deposit from companies have high degree of risk of default and must form a small part of your  investment portfolio. Higher credit rating is must for investment in the companies deposit.
4. Interest received on fixed deposits is taxed at the marginal rate of tax applicable to the individual i.e. it depends on the tax bracket in which individual is liable to pay tax.
5. Reinvestment of matured fixed deposit may face interest rate risk i.e. at the time of reinvestment the market rate of interest may be lower and individual have to deposit in the lower interest.
6. If the inflation on an average is greater than deposit rate then investing in fixed deposit may not be good decision. 

RECURRING DEPOSIT:

A Fixed deposit with monthly installments, payable on maturity along with interest . It is like making fixed deposit on regular basis in installment. 

Advantages:

1. Individual can make habit of savings discipline.
2. Have freedom to choose installment amount and period according to needs and affordability.
3. Installment as low as Rs.10.00
4. Can invest for minimum 6 months to maximum 10 years.
5. No TDS on interest earned.
6. Very low risk.
7. Can available loan against recurring deposit.
8. R.D. are suitable for people who do not have lump sum amount of savings, but are ready to save a small amount every  month.

Disadvantages:

1. No flexibility- you can’t change installment amount and time period.
2. Premature withdraw will attract penalty.
3. Not a tax free investment.
4. No partial withdrawal facility available.