How to safeguard your money in bank?

Each depositor in a bank is insured maximum of Rs. 1 lakh inclusive of principal and the accrued interest. All the Deposits like savings, Fixed deposits, current and recurring collectively kept in different branches of of one bank will be aggregated and maximum insurance cover of Rs. 1 lakh is paid, as all these accounts will be considered as the accounts held in the same capacity and in same right. Putting money in different branches of one bank will not protect your money of more than 1 lakh. Then how do we safeguard.......

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Fixed Maturity Plans

Fixed Maturity Plans ( FMPs ) are more like Fixed deposits ( FD ), but vary in nature. Mutual funds have FMPs in their portfolios. How do they differ from fixed deposits? What are the tax implications? Do they give better returns than FDs?

What is the difference between FD and FMP?

Fixed Maturity Plans are close ended debt funds. i.e. unlike fixed deposits we can't buy them whenever we want. Only when the fund offer is open we can buy FMPs. The main difference is in the return the investor gets. Return on FDs is fixed i.e.there won't be any variation in the maturity value when the FD is matured. But return on Fixed Maturity Plans are indicative i.e. the maturity value may vary a little at the time of maturity. Why so?

Do FMPs give better returns than FDs?

Fixed Maturity Plans are debt funds. The FMPs invest in certificates of deposit (CDs), commercial papers (CPs), money market instruments, corporate bonds, even in bank fixed deposits. FMPs charge fund management fees. These debt instruments have maturity period. The maturity in these debt instruments coincides with the maturity of FMPs. So there may be a slight deviation in the returns on FMPs though it may not be very significant.

Tax implications

Tax implications are also different for FMPs. The return on FDs in added to your income whereas the return on FMPs is treated more like mutual fund returns. If one opts for dividend option, then he/she has to pay dividend distribution tax. If one opts for growth option, they are treated like capital gains tax. In growth option if one keeps it for a short term i.e. less than a year, he/she has to pay capital gains tax on the interest earned as the interest earned is added to the income. If the investment is more than an year, tax is based on with or without indexation. Compared to FDs, FMPs give slightly better returns.

What about the liquidity?

FDs are better in liquidity when compared to FMPs.FDs can be broken with penalty if the need arises whereas FMPs are not that liquid.