Gratuity in India is a defined benefit plan offered by companies to their employees as gratitude towards the services rendered. This monetary payment is a type of retirement benefit. Individuals working with a company for 5 years or more can also avail gratuity fund upon exiting. They can receive the same before on certain conditions – death of the employee and accident or disability.
The best investment option for gratuity money
As a retired individual, investing the gratuity fund in a scheme that ensures regular income proves ideal. One of the safest investment avenues in the market is fixed deposits. FDs are not market-linked, and hence, bring assured returns on maturity.
Reputed financial institutions in the country offer attractive fixed deposit interest rates. Senior citizens can avail higher rates over and above the regular interests. Moreover, the interest rate is compounded over time which helps you grow the fund steadily. For instance, a fixed deposit with 5 years of tenor can increase your savings by close to 53%.
You can either keep the entire gratuity fund in a single account or invest smaller amounts in multiple FDs.
Note that there are usually two types of fixed deposits –
- Cumulative fixed deposits – Interest rate is compounded but paid only on maturity.
- Non-cumulative fixed deposits – Interest rate is compounded here as well, but you can receive the same periodically.
5 more reasons to invest in fixed deposits
Besides interest rates, few other reasons make FDs the best investment option for gratuity in India.
1: Offers multiple payout options
After retirement, an individual primarily aims to maintain a regular income for the diverse monthly expenses. Non-cumulative FDs for senior citizens offer the benefit of periodic interest payouts to help them efficiently manage their finances. Invest a lump sum amount to receive a higher payout as per schedule.
You can choose to receive the interest payout on half-yearly, yearly, monthly or quarterly basis.
2: Affordable minimum deposit
Gratuity in India is calculated differently for the two categories – employees under the Act and employees not under the Act. No matter your gratuity amount, you can invest in FDs with a minimum deposit value usually starting from Rs. 25,000.
3: Cash availability during an emergency
Investing in a fixed deposit is an excellent way to create an emergency fund after retiring. During an emergency, you can always break the fixed deposit before maturity. However, you need to pay a premature withdrawal charge.
A better alternative is a loan against fixed deposit. It provides instant access to finance while your invested fund continues to yield returns. You can also utilise the FD interest payouts to contribute to the loan repayment.
4: Stability certified
Approach to top financial companies in India to avail certified fixed deposit schemes. Bajaj Finance is a reputed and the sole Indian NBFC to hold the international ‘BBB’ rating from S&P Global. Fixed Deposits from this NBFC are 100% safe with FAAA ratings from CRISIL and MAAA ratings from ICRA for their stability.
Additionally, if you opt to renew your FD post the tenor’s end, be assured of receiving an extra 0.10% over and above the current interest rates.
5: Additional tax benefits
The Income Tax Act of India under Section 80TTB allows senior citizens to enjoy tax benefits on their deposits. They can claim deductions on their interest earning up to Rs. 50,000 in a single fiscal.
Again, financial institutions make TDS when the interest income exceeds Rs. 10,000 on a regular deposit. However, they don’t charge TDS for senior citizens if their income interest is within Rs. 50,000. You can know everything about TDS on FDs before proceeding.
Nowadays, most financial organisations provide online fixed deposit calculators which compute your investment returns instantly. Such calculators take the amount, applicable fixed deposit interest rates, tenor, customer type, etc. to calculate the interest earned and matured amount. Some online calculators also show the interest payouts separately to aid you to choose an appropriate schedule. Use the free online FD calculator to plan your retirement finances strategically.
The Payment of Gratuity Act, 1972 governs the payment of gratuity in India and makes it mandatory in all legal places of employment. The employer, however, must have a minimum of 10 employees working in his/her company. It is better you plan the retirement corpus beforehand and open a fixed deposit account for the safest and guaranteed returns on the investment.
