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FDs are just on the tip of our mind when it comes to investing in a financial product, Green FDs are now around to be at the forefront too as it comes with a similar concept as FD but with a strong motive of promoting green initiative.
In the realm of living in a carbonated space, it’s essential to realize the need to breathe fresh air, reduce carbon footprint, and also to lessen the impact of temperature on the environment. So why not support the initiatives that want to take this lead at the cost of receiving a fixed return? Surely it is a thing to be invested in right?
Let’s explore Green FDs in this article!
What’s the purpose?
The motive behind raising money from the investors is the positive impact they want to leave on the environment. For instance, think of a company that wants to raise funds for solar power and hydro projects or a company that wants to initiate building green infrastructure.
You as an investor would be funding the lenders for this reason. So that way only sectors such as energy efficiency, clean transportation, sustainable water, renewable energy, waste management, climate change adaptation, pollution prevention, and control, green buildings, biodiversity conservation, and management of living natural resources can raise Green FDs for receiving the funds.
For no other purpose, this fund can be utilised and hence is restricted to the 9 sectors mentioned above. Here’s an instance to understand what it means, the banks may raise it to fund other carbon-heavy purposes whereas the funds from Green Deposits must only be used for environment-friendly projects.
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How does it work?
Beginning on June 1, the Reserve Bank of India has released a new framework for banks & NBFCs to follow. It is mandatory for them to let RBI know what they are doing with the funds raised by the companies. It is just to ensure the money goes to the intended purpose and that the financial instrument has transparency.
This is how it can help, it is the same as the regular FD offering interest to the investors for a fixed time. Although there isn’t any significant difference in the interest rate compared to the regular FDs, the customers who believe in helping the sustainability agenda of these companies will find a reason to invest.
So that the companies can then invest in green initiatives.
RBI has ensured the framework such that the exclusions are made clear such as they are exempt from using the funding for activities like direct waste combustion, generation of nuclear power, and extracting, producing, and distribution of fossil fuels.
These companies raising funds must issue the Green FD with both non-cumulative & cumulative options, also allowing the investor to either withdraw or renew the Green FDs on maturity. They are safer for the reason that if it is issued by the bank, they offer insurance for a deposit of 5 lakhs but this isn’t the same case for NBFCs.
If it is issued by the banks, they would raise this money to offer loans to the companies with the vision of sustainability.
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The nitty gritty
With both retail and corporate customers in mind, these innovative financial instruments offer benefits that make them an enticing option for the environmentally-conscious investor.
1. Assured returns for all
Green Fixed Deposits provide a unique opportunity for individuals and corporate entities to invest their money while earning assured returns. Whether you’re a socially conscious individual looking to grow your savings or a business committed to sustainable finance, these deposits offer a reliable avenue to preserve and enhance your wealth.
2. Tailored interest rates
To sweeten the deal, banks offer attractive interest rates on Green Fixed Deposits, with variations depending on the institution. As an added perk, senior citizens can enjoy an extra 0.25% interest rate on deposits up to Rs. 2 crores. Additionally, for those who prefer the convenience of online transactions, an enticing 0.1% extra interest rate per annum is applicable on deposits up to Rs. 50 lakhs. Such flexibility allows you to maximize your returns while making a positive impact.
3. Flexible tenures
The tenure of Green Fixed Deposits varies, typically ranging from 18 months to 10 years, providing ample choices to suit your financial goals and timeframes. Whether you seek short-term gains or long-term stability, these deposits offer the flexibility to tailor your investment horizon to your specific needs.
4. Premature withdrawal options
Life is full of surprises, and sometimes we may need access to our funds earlier than expected. Green Fixed Deposits understand this and provide the flexibility of premature withdrawal.
After an initial three-month lock-in period, individuals can withdraw their funds and earn a flat 3% interest, irrespective of prevailing rates, if the withdrawal occurs between 3 to 6 months.
Non-individual investors, on the other hand, can make interest-free premature withdrawals. However, it’s important to note that withdrawals made after six months attract a minor penalty of 1% and receive an interest rate of 1% lower than the applicable rates.
It’s a fair compromise to ensure both stability and accessibility when needed.
5. Safety and security
With Green Fixed Deposits, you can rest assured that your deposits are protected. The Indian banking system provides insurance coverage for deposits up to Rs. 5 lakhs, giving you peace of mind and safeguarding your hard-earned money. Investing in a green future shouldn’t mean sacrificing security, and with these deposits, you can have the best of both worlds.
Closing up
In a world where financial institutions are increasingly recognizing the urgency of sustainable investments, HSBC made a groundbreaking move in 2020 by becoming the first foreign bank in India to introduce a green fixed deposit scheme.
Like them, many other banks have a scheme for this initiative, such as HDFC, Federal Bank, DBS, Union Bank, IndusInd Bank, and many more.
The timing couldn’t be more critical. According to the Organisation for Economic Cooperation and Development (OECD), achieving the ambitious sustainability goals set for our planet will require an astonishing annual funding of approximately $6.9 trillion until 2030. This staggering figure underscores the immense financial resources needed to create a sustainable and resilient world for future generations.
Are you ready to join the movement and shape a sustainable future through your financial choices? The choice is yours, and the possibilities are mind-boggling.
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