NON CUMULATIVE FD
Fixed Deposits are considered a secure investment option that offers consistent decent returns, no market risk, special interest rates for senior citizens, various interest payment options, and income tax benefits. An important factor to observe before investing in FDs is whether the FD is cumulative or noncumulative. In this article, we are going to discuss in detail about non-cumulative FDs.
WHAT ARE NON-CUMULATIVE FDs?
Investors can receive the interest accrued as regular payments with non-cumulative Fixed Deposits. By selecting this FD, Investors can opt for payout at annual, semi-annual, quarterly, or monthly intervals. For instance, if an investor invests Rs 10,00,000 in Non-cumulative FD for a time horizon of 3 years i.e. 36 months at a return of 7%, then they will earn 70,000 per year which will be released as a payout.
This option does offer lower returns as it is not taking the benefit of compounding. Investors can check out the different returns on FD using the ZFunds Fixed Deposit Calculator.
WHO SHOULD OPT FOR NON CUMULATIVE FD?
For investors who are interested in receiving regular payouts and looking to meet their regular expense commitments, the non-cumulative fixed deposit can be the ideal option to go forward with. The interest is released as payout as per the will of the investor.
DIFFERENCE BETWEEN NON-CUMULATIVE AND CUMULATIVE FDs
| BASIS | NON CUMULATIVE FD | CUMULATIVE FD |
| Interest Accumulation | The interest is not accrued because of regular payouts. | The interest is accumulated throughout the tenure of FD. |
| Interest payout frequency | Yearly, Half-yearly, quarterly, or Monthly - as per inventor’s choice. | After the maturity period. |
| Total interest earned | The interest earned is less and the payout amount gets decreased when the frequency gets higher | The interest that is earned is more as it is yielded across the period and is accumulated and added back to the initial deposit amount for further compounding. |
| Periodic Income | The periodic income is yielded throughout the selected period. | There is no concept of periodic income |
| Ideal for? | The investors are looking out for the funds for monthly or day-to-day expenses without leaving any effect on the principal amount. | This type of FD is ideal for investors looking for growth in savings and creating a good corpus for achieving their financial goals. |
HOW TO OPT BETWEEN THE TWO?
Salaried individuals or small businessmen who do not mandatorily need any added income to meet their monthly commitments can easily go forward with cumulative FD. By saving a larger amount, the corpus built using a cumulative scheme can help to meet the long-term investment and financial goals.
For retired pensioners or individuals who do not have a regular source of income, noncumulative FD can prove to be ideal as they provide periodic payments on regular intervals, allowing such individuals to better plan their monthly expenses.
Irrespective of which section you belong to, an FD, can help you build a better wealth and corpus for the future. In fact, they are the most opted form of investment in India to help investors meet their long-term goals.
Frequently Asked Questions (FAQs)
1. Who should opt for non-cumulative FD?
The investors are looking out for the funds for monthly or day-to-day expenses without leaving any effect on the principal amount.
2. What is a non-cumulative FD?
Investors can receive the interest accrued as regular payments with non-cumulative Fixed Deposits. By selecting this FD, Investors can opt for payout at annual, semi-annual, quarterly, or monthly intervals.
3. Does non Cumulative FD offer periodic income?
Yes, Cumulative FD does offer a periodic return.
4. What is the interest payout frequency of non-cumulative FD?
The interest payout frequency of non-cumulative FDs is annual, semi-annual, quarterly, or monthly intervals.