What is Non Cumulative FD? Understanding Regular Income Fixed Deposits

Understanding Non Cumulative Fixed Deposits

When planning your investments, understanding what is non cumulative FD can help you make better financial decisions. A non cumulative FD is a type of fixed deposit where the interest earned is paid out to you at regular intervals rather than being added back to your principal amount.

In simple terms, if you’re looking for a regular source of income from your savings, a non cumulative FD might be the right choice. The non cumulative FD structure ensures you receive interest payments monthly, quarterly, half-yearly, or annually, depending on your preference.

Think of it as planting a fruit tree that gives you regular harvests (interest payouts) while keeping the tree itself (your principal) intact until maturity. This differs from cumulative fixed deposits, where the fruits are left to grow with the tree, resulting in a larger yield at the end.

How Non Cumulative FDs Work

The process of investing in a non cumulative FD is straightforward:

1. You deposit a lump sum amount for a fixed period.
2. Choose your preferred interest payout frequency.
3. Receive interest payments as per your selected frequency.
4. Get your original principal back when the FD matures.

For those wondering what a non cumulative FD is in practical terms, it’s essentially a contract between you and the bank where your money earns a fixed interest rate, and that interest is transferred to your account regularly instead of accumulating with your principal.

Benefits of Non Cumulative Fixed Deposits

There are several advantages to choosing non cumulative FD options:

• Regular Income Stream: Perfect for meeting monthly expenses or supplementing your salary.
• Predictable Returns: Know exactly how much you’ll receive and when.
• Financial Planning: Easier budgeting with scheduled interest payouts.
• Capital Preservation: Your principal amount remains intact throughout the tenure.
• Flexibility: Choose payout frequency based on your needs.

Ideal Scenarios for Non Cumulative FDs

Understanding what a non cumulative FD is helps in identifying when it’s most beneficial:

Scenario 1: Retirement Planning
Ramesh, a 65-year-old retiree, invested ₹10 lakh in a non cumulative FD at 7.5% with monthly payouts. This gives him approximately ₹6,250 every month to cover his regular expenses while keeping his principal safe.

Scenario 2: Education Expenses
Priya needs to pay her daughter’s quarterly college fees. By investing in a non cumulative FD, she receives interest payouts that align with the fee payment schedule.

Calculating Returns on Non Cumulative FDs

When evaluating the returns of a non cumulative FD, the calculation is relatively simple:

Interest Payout = Principal x Interest Rate x (1/Payout Frequency)

Interest Payout Formula

Non Cumulative vs Cumulative Fixed Deposits

To truly understand what a non cumulative FD is, comparing it with cumulative options is helpful:

The main difference lies in how interest is handled. In non cumulative FD options, interest is paid out, while in cumulative FDs, interest is reinvested, benefiting from compounding.

Who Should Choose Non Cumulative FDs?

Understanding what is non cumulative FD helps in determining if it’s suitable for your needs:

1. Retirees: Those who need regular income to support daily expenses.
2. Conservative Investors: People who prioritise safety and predictable returns.
3. Individuals with Regular Financial Commitments: Those with recurring payments like EMIs or insurance premiums.
4. Income Supplement Seekers: Working professionals looking to supplement their salary.

How to Open a Non Cumulative FD

Opening a non cumulative FD account is simple:

1. Choose a reliable financial institution.
2. Decide on the deposit amount and tenure.
3. Select your preferred interest payout frequency.
4. Complete KYC requirements (typically PAN and Aadhaar).
5. Fund your deposit via bank transfer or cheque.

For a seamless digital experience, you can consider platforms like Airtel Finance. They make the entire process quick and seamless.

Understanding what a non-cumulative FD is thoroughly helps you make informed decisions and maximise your returns while maintaining liquidity. For a hassle-free investment experience with competitive interest rates and minimal documentation, explore your options with Airtel Finance.

FAQs

1. What is non cumulative FD and how is it different from a savings account?

Non cumulative FDs offer higher interest rates than savings accounts with fixed returns paid out regularly. Savings accounts have lower interest rates but provide complete liquidity with variable returns.

2. Can I change my non cumulative FD to cumulative mid-term?

No, the deposit type (cumulative or non-cumulative) cannot be changed after opening the FD. You would need to break the existing FD and create a new one.

3. What happens to my non cumulative FD interest if I don’t withdraw it?

The interest is credited to your linked account as per the chosen frequency, regardless of whether you withdraw it or not.

4. Are non cumulative FD options better for senior citizens?

Yes, they’re often preferred by seniors, as they provide regular income while keeping the principal secure, plus many banks offer higher interest rates for senior citizens.

5. What is non cumulative FDs minimum investment amount?

The minimum amount varies by financial institution, typically ranging from ₹1,000 to ₹10,000 depending on the provider.