Know all about green fixed deposits. Should you invest in it?

The concept of a green fixed deposit revolves around promoting sustainable progress by directing capital towards endeavours prioritising renewable energy, clean technology, or other initiatives that yield positive environmental outcomes.

Since June 1, recent regulations governing green fixed deposits have come into effect. Under these regulations, banks and financial institutions that accept green deposits must notify the Reserve Bank of India (RBI) regarding their investment plans for the funds received. These updated norms aim to enhance transparency and guarantee that the funds collected through green deposits are allocated to the intended purpose.

Abhijit Roy, CEO of GoldenPi Technologies, emphasises the significance of the revised green fixed deposit regulations that came into effect on June 1. He mentions that banks accepting green deposits must now disclose their investment plans for the funds to the Reserve Bank of India (RBI). This development is expected to bolster transparency and instil greater confidence among investors by ensuring the funds are allocated to their intended purpose.
How does it work?
Like regular term deposits, green fixed deposits allow investors to earn a predetermined interest rate over a specific duration. However, the differentiating factor lies in how the funds gathered through green deposits are utilised.

According to Roy, a green fixed deposit, also referred to as an environmentally friendly fixed deposit, is a financial tool that promotes sustainable development by directing funds towards projects dedicated to renewable energy, clean technology, or other environmentally beneficial initiatives. He further explains that green FDs prioritise investments that generate a positive environmental impact, unlike traditional fixed deposits. Such investments may involve funding solar power projects, wind farms, organic farming, energy-efficient infrastructure, and other ventures.
Who can invest?
Typically, green fixed deposits are accessible to individuals who satisfy the eligibility criteria established by the respective bank or financial institution. While specific requirements may vary from one institution to another, common factors considered include age, residency, and the ability to furnish the necessary documentation.
Where can you invest?
Several prominent financial institutions in India, including HSBC and HDFC, actively provide green fixed deposits to individuals and corporations. These specialised FDs concentrate on sectors such as renewable energy, clean transportation, pollution prevention, green construction, and sustainable water management.

HSBC primarily offers a Green Deposit scheme tailored for corporate clients, focusing on sustainable initiatives.

In addition to HSBC and HDFC, several other financial institutions such as Federal Bank, IndusInd Bank, Union Bank, and DBS Bank have also introduced their own green deposit schemes.
Green FD rates
Green fixed deposits offer attractive interest rates to eligible depositors, reaching up to 7% or even higher.

For instance, under HDFC’s Green and Sustainable Deposit Scheme, regular deposits can earn an annual interest rate of 7.25% for a tenure of 24-35 months. Deposits with a tenure of 36-60 months are eligible for an interest rate of 7.3%, while deposits with a tenure of 61-120 months can earn an interest rate of 7.2%, as per the information available on HDFC’s website. Senior citizens can avail an additional interest rate of 0.25% per year on deposits up to Rs 2 crore.

For precise details regarding interest rates and tenure, it is recommended to directly contact the respective bank for more information.
Premature withdrawal and overdraft
According to Roy, green fixed deposits provide guaranteed returns and have a range of tenure options available, spanning from 18 months to 10 years. Premature withdrawal is allowed under certain conditions, and deposits up to Rs 5 lakh are insured.

Furthermore, individuals can also utilise overdraft facilities against their green fixed deposits. However, it’s important to note that the green FDs may be converted to regular fixed deposits in such cases.

Benefits of green FDs

As per Roy, investing in green fixed deposits offers several advantages:

1. Contribution to Sustainable Development: Individuals actively contribute to sustainable development and environmental conservation efforts by investing in green FDs. Their investments support projects centred around clean energy and eco-friendly practices, positively mitigating climate change and reducing carbon footprints.

2. Competitive Interest Rates: Green FDs frequently offer competitive interest rates, ensuring attractive financial returns for investors. This provides an opportunity to earn a reasonable yield on their investment while supporting environmentally conscious initiatives.

3. Portfolio Diversification and Values Alignment: Investing in green FDs allows individuals to diversify their investment portfolios by incorporating assets aligned with their personal values. It provides an avenue to promote sustainable practices and make investment decisions that align with their environmental beliefs.

By considering these benefits, individuals can make informed choices to invest in green FDs and create a positive impact on both their finances and the environment.
Risks

Roy highlights that green fixed deposits may entail certain risks related to funded projects, such as regulatory changes or technological challenges. It’s essential to recognise that these risks can affect the performance of the investments.

Furthermore, it’s worth noting that the availability and accessibility of green FDs may vary among different banks, potentially limiting options for prospective investors.

Roy advises individuals to exercise caution and carefully evaluate the terms, conditions, and interest rates associated with green FDs before making an investment decision. This allows investors to make informed choices and mitigate potential risks.

For any clarifications/feedback on the topic, please contact the writer at samiksha.swayambhu@clear.in