Budget 2012: Reduction in Lock-In Period for Bank FDs Soon

The Finance Minister has agreed to consider the proposal for reduction of lock-in-period for banks’ fixed deposits to 3 years from 5 years. It means that the maturity period for fixed deposits availing tax benefits under section 80C of the Income Tax Act, for 5 years is reduced to 3 years.

Earlier, bank officials had emphasized the need to mobilize the deposits in order to meet the rising credit needs and they have shown that country’s savings of 32% of GDP is inter-mediated through banks. Banks opine that once a shorter lock-in period for Fixed Deposits arise, it will help arrest the decline in mobilization and discourage depositors from switching to other options.

Moreover, the financial planners say that this proposal will benefit the risk averse investors. Usually, investors likely to invest in more liquid options like Systematic Investment Plans (SIP) of mutual funds that offer similar tax benefits with shorter lock-in-period, equity-linked savings scheme or the Pubic Provident Fund (PPF) etc. The present norm will encourage people to park with banks’ fixed deposits as an attractive option.

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