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    What is a Term Deposit, Its Benefits, Features and Should You Invest

    A term deposit is a broad term used by banks and non-banking financial companies (NBFCs) to refer to investments like a fixed deposit or recurring deposit that are made for a predetermined period of time to earn higher interest than a savings account. Find out details regarding how term deposits work, and the key differences between term deposit vs. fixed deposit from an investor’s perspective....Read More

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    Abhishek Chakravarti

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    Abhishek is a financial writer with over 6 years of experience in the BFSI sector. Prior to his current stint with Max Life Insurance, he has worked with leading fintech startups. He specializes in writing about taxation and various investment products like ULIPs, retirement plans, guaranteed investment plans, mutual funds etc.

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    Sahil Rawal

    BFSI Expert

    Sahil Rawal is a digital & brand management specialist with over 10 years of experience in Financial Services Industry. Life insurance professional with expertise in digital marketing strategy, website content marketing and brand communication designed to increase brand awareness, drive engagement & sales.

    What is a Term Deposit?

    A term deposit is a fixed-term investment, including the deposit of money at a financial institution in an account. The term deposit investments generally carry the short-term kind maturities, ranging from a month to a couple of years. These will also have varying levels of required minimum deposits.

    In case you are wondering what is time deposit, term deposits are same as time deposits and come with high-interest rates compared to conventional savings accounts, wherein the customers can withdraw money at any time as per their needs. Common examples of term deposits include fixed deposits (FD) and recurring deposits (RD).

    Term-Deposit-1.png

    Key Features of Term Deposit

    In a time of rising rate of interests, the consumers are more likely to invest in term deposits since the increased cost of borrowing makes the savings even more attractive. Additionally, with high market interest rates, the bank will need to offer the investor a high interest rate, so that the consumer also earns more.

    • Term deposits come with a fixed rate of interest over the life span of the investment
    • Term deposits are risk-free, secure and safe investments since NCUA or FDIC backs them.
    • Several maturities allow the investors to stagger the end-dates and create an ‘investment ladder’.
    • Term deposits such as recurring deposits have a comparatively low minimum deposit account.
    • For the larger initial deposit amounts, term deposits pay higher rates.

    Benefits of Term Deposit

    When it comes to a term deposit, a consumer agrees to lock away money for an agreed upon span of time. In return, the consumer gets a guaranteed rate of interest for the term selected. This way, the consumer is aware of when can they get their invested money back. Term deposits come with an array of benefits and, therefore, are the ‘most popular savings product’.

    · A guaranteed return

    When it comes to term deposits, the return is agreed upon with the financial institution at the time of purchase, which ultimately indicates that the individual investing will be aware of the interest they will earn prior to deposition of the money, based on the term and the amount.

    · Fixed remuneration

    In contrast to the variable investments, the term deposits offer a fixed remuneration across the lifetime of a product investment as guaranteed by the DGF (Deposit Guarantee Fund). Term deposits offer a reduced risk as compared to the other saving products and are also under the protection of the Deposit Guarantee Fund.

    · Purchasing a term deposit is easy and quick

    An individual can make a purchase of the term deposit in a hassle-free way and a matter of a couple of minutes. The bank lets you purchase the deposit online as these are simple products, and no extensive or deep-rooted knowledge is required in investing for the same.

    You decide how long you want to maintain the deposit. The conditions of a term deposit cannot be changed: as a product with a specific duration, banks cannot change any of the conditions agreed upon at the time of purchase.

    · Flexible date of maturity

    It is in the hands of the investor to decide the time span for which they want to maintain the deposit. However, the terms and conditions of a term deposit as agreed at the time of a purchase can in no way be modified.

    · A great option for the conservative and low-risk investors

    Term deposits are the best choice for low-risk or conservative investors who are reluctant to take risks and want guaranteed investments. While purchasing a term deposit, it is important to be aware and clear that there will be no need for money in the agreed period because if an individual chooses to withdraw it earlier than usual, there will be a penalty charged.
    Term-Deposit-2.png

    How Can a Depositor Benefit From a Term Deposit?

    A depositor can make deposit in these term deposit or fixed term deposit accounts, agreeing on not withdrawing funds for a fixed period in return for a comparatively higher interest paid on the account. The interest rate earned on a term deposit account is slightly higher than that paid on the standard savings or the interest rate in checking accounts. The higher interest rates of FD and RD are because access to money is limited for the timespan of the term deposit.

    Therefore, term deposits can have different timelines but are an extremely safe and secure investment with guaranteed returns and are even more appealing for the low-risk, conservative group of investors. Financial instruments like term deposits are sold by the banks and are insured by the DICGC (Deposit Insurance and Credit Guarantee Corporation). Additionally, The NCUA (National Credit Union Administration) provides coverage for the ones sold by credit unions.

    Fixed Deposit vs Term Deposit

    • A term deposit is often used when the deposit is extended for a certain period, say 3 months, 6 months etc. Fixed deposits, on the other hand, are used when the deposit is for a period of 6 months or greater than that. The deposit amount offers a higher rate of return as compared to the banks’ savings accounts.

    • In both types of investment options, the investor deposits a certain sum of money for a period to earn an interest rate on it.

    • Bank deposits are highly secure with no actual downsides or risks involved, especially when it comes to returns.

    • The accounts can be easily opened by simply approaching the bank. On maturity, the principal amount and the interest are payable. If the investors do not specify a mandate, the deposit is renewed for another fixed term at a prevalent rate of interest.

    • In both cases, at the time of a premature withdrawal of FD, a penalty is levied from the investor as a relatively lower rate of return than the contracted rate.

    How To Invest In a Term Deposit?

    Term-Deposit-3.png

    Term deposits are also referred to as the certificate of deposits. Customers can view these conditions of a term deposit through a paper statement. The statement includes the needed minimum principal amount, the rate of interest paid and the time span or the time to maturity of the deposit, as initially agreed by the depositor and the bank.

    The bank, in some instances, can ask to open another account with the deposit account. For saving on taxes, an individual must consider investing in a 5-year tax saving term deposit with the bank. Furthermore, there are other term deposits that allow earning an interest income monthly with a lumpsum investment towards the same. This is generally for a 5 year period.

    The investor must understand that when buying or investing in the term deposit, it is possible to withdraw funds only after the end of the term. In a few cases, the account holder may allow an investor for an early termination or a withdrawal if given notice several days prior. Also, there will be a penalty for early termination.

    Frequently Asked Questions (FAQs)

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    A term deposit account is a type of deposit account held at a financial institution with money in it for a set period. Term deposit accounts are usually deposits with maturities ranging from a few days to a few years.
    The terms time deposit and term deposit mean the same thing. It is used to refer to an interest rate-bearing bank account with a fixed term. It allows the depositors to grow money with a higher rate of interest as compared to the regular savings account. After the term is over, the depositors can choose to withdraw money, or the proceeds can be reinvested for an additional term. In India, Post Office fixed and recurring deposit accounts are officially called time deposits.
    Yes, you can make premature withdrawal from fixed deposit and other term deposit accounts. However, withdrawal from term deposits are subject to various penalties and also lower interest earnings from the deposit.
    Term deposits can help you grow your money faster with a higher interest rate than a savings account at the bank or post office. That said, the key limitation of a term deposit vs savings account are the penalties that might be applicable to withdrawals made before maturity of the term deposit. No such restriction is applicable to savings accounts.
    The maturity term for a short-term fixed deposit is from 7 days to a maximum of 2 years (24 months). On the other hand, the maturity term for a long-term fixed deposit ranges from more than 2 years and up to 10 years. So, a short-term fixed deposit leads to a shorter lock-in period of your money as compared to a long-term fixed deposit.

    ARN: Aug23/TD/02J

    Sources:

    www.thebalance.com/what-is-a-term-deposit-5188865

    www.bajajfinservmarkets.in/fixed-deposit/short-term-fd-vs-long-term-fd.html

    www.bajajfinserv.in/insights/6-reasons-why-an-fd-is-better-for-you-than-a-savings-account

    www.financialexpress.com/money/premature-withdrawal-of-term-deposit-how-to-do-it-without-paying-any-penalty/2031956/

    www.bajajfinservmarkets.in/fixed-deposit/time-deposit-vs-fixed-deposit.html

    www.bajajfinserv.in/term-deposit-meaning-features-benefits-types

    www.rbi.org.in/Scripts/NotificationUser.aspx?Id=1784&Mode=0

    www.goodreturns.in/classroom/2016/06/what-is-the-difference-between-term-deposit-fixed-deposits-462928.html?story=4

    m.rbi.org.in/scripts/FAQView.aspx?Id=64

    www.yesbank.in/money-matters/what-is-fixed-deposit-account-features-and-benefits-of-fixed-deposit

    www.financialexpress.com/money/fixed-deposits-how-fd-laddering-can-maximise-your-investment-benefits/1792759/
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    THE UNIT LINKED INSURANCE PRODUCTS DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICYHOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF FIFTH YEAR.

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    *#Some benefits are guaranteed and some benefits are variable with returns based on the future performance of your Insurer carrying on life insurance business. The assumed rates of return (4% p.a. and 8% p.a.) shown in the illustrative example are not guaranteed and they are not the upper or lower limits of what you might get back as the value of your Policy depends on a number of factors including future investment performance. The guaranteed and non-guaranteed benefits are applicable only if all due premiums are paid.The Maturity Benefit shown in the illustrative example are inclusive/exclusive of taxes.

    ^*Disclaimer: Applicable for Titanium variant of Max Life Smart Fixed-return Digital (Premium payment of 5 years, Policy term of 10 years) and a healthy female of 18 years old paying Rs.3,60,000/- annually (exclusive of all applicable taxes)

     

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    The savings indicated is the maximum premium difference as compared with offline plan & depends on the variant purchased.

    ^*All claims that qualify for InstaClaim™ will be paid within 1 working day from date of submission of all mandatory documents else Max Life will pay interest at Bank Rate as on beginning of financial year in which claim has been received (4.65 % p.a. for FY’20) for every day of delay beyond one working day. Interest shall be at the bank rate that is prevalent at beginning of the financial year in which death claim has been received.

    Claims for policies completed 3 continuous years. All mandatory documents should be submitted before 3:00pm on a working day.Claim amount on all eligible policies4 is less than Rs. 1 Crore. Claim does not warrant any field verification.Mandatory Documents :> Original policy document > Original/attested copy of death certificate issued by local municipal authority > Death claim application form (Form A) > NEFT mandate form attested by bank authorities along with a cancelled cheque or bank account passbook along with nominees photo identity proof > Discharge/Death summary attested by hospital authorities or FIR & Post Mortem Report/viscera report (in case of accidental death)

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    5Criteria applicable only for “Term plans” for Graduate, Indian resident with declared income >= 10 lacs with CIBIL score >= 650 (salaried) and >= 700 (self-employed) with no disclosed medical condition

    4InstaClaim TM is available for all versions of (UIN:104N118V06). Mandatory Documents : • Original policy document • Original/attested copy of death certificate issued by local municipal authority • Death claim application form (Form A) • NEFT mandate form attested by bank authorities along with a cancelled cheque or bank account passbook along with nominees photo identity proof • Discharge/Death summary attested by hospital authorities or FIR & Post Mortem Report/viscera report (in case of accidental death)

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    Tax conditions :

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    Save 46,800 on taxes if the insurance premium amount is Rs.1.5 lakh per annum and you are a Regular Individual, Fall under 30% income tax slab having taxable income less than Rs. 50 lakh and Opt for Old tax regime ~# Save 54,600 on taxes if the insurance premium amount is Rs.1.5 lakh per annum for life cover and 25,000 for critical illness cover and you are a Regular Individual, Fall under 30% income tax slab having taxable income less than Rs. 50 lakh and Opt for Old tax regime.

    3The discount is applicable if you are a salaried employee with a corporate. During policy issuance, Max Life may call for proof of employment if required. In case proposer when asked is not able to prove the employment part, discount offer will be discontinued and additional premium as applicable will have to be paid for processing of the case.

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    MAX LIFE CRITICAL ILLNESS AND DISABILITY RIDER (UIN- 104B033V01) available as a rider on payment of additional premium.

    >Extended cover of up to 85 years is available with gold and platinum variant only

    @ 64 critical illnesses covered in platinum and platinum plus variant on payment

    22 critical illnesses covered in gold and gold plus variant

    6 The life insurer is eligible for a discount on renewal premium under regular pay variant by accumulating Healthy Weeks as per terms and conditions of the rider

    *^Total premiums paid inclusive of any extra premium but exclusive of all applicable taxes, cesses or levies and modal extra. Return of premium option is available on payment of additional premium.

     ~ Conditions for premium break : Available at an additional premium for policies with policy term greater than 30 years and premium payment term greater than 21 years. Option to skip paying premium for 12 months. 2 premium breaks will be available during the premium payment term separated by an interval of at least 10 years

    ~1 Conditions for Special exit value:

    Option to receive all premiums paid back, at a specified point in the term of the policy (free of cost). Available when Return of Premium variant is not chosen. No additional premium to be paid.

    ~2 Voluntary Top-up Sum assured:

    Option to double your insurance cover, basis underwriting, at the time of your need by increasing your sum assured up to an additional 100% of base sum assured, chosen at inception

    ^^*^^Free look period conditions:

    The policyholder has a period of 30 days from the date of receipt of the policy document, to review the terms and conditions of the Policy, where if the policyholder disagrees to any of those terms or conditions, he / she has the option to return the Policy stating the reasons for his objections. The policyholder shall be entitled to a refund of the premiums paid, subject only to deduction of a proportionate risk premium for the period of cover and the expenses incurred by the company on medical examination of the lives insured and stamp duty charges.

    ^Individual Death Claim Paid Ratio as per audited financials for FY 2022-2023

    8https://www.moneycontrol.com/news/business/economy/buy-term-insurance-now-as-rates-may-rise-from-april-1-4930921.html

    2Total premium will be charged at the time of the policy issuance (subject to underwriting’s decision).

    3The guaranteed benefits are available with selected life insurance plans & are applicable if all due premiums are paid

    4Tax benefits as per prevailing tax laws, subject to change

    Terms and conditions for availing 5% employee discount:

    <Due to system constraints, employee is requested to select 5 Lakh and above income which can be changed to actual amount on the information page.

    1 The 5% employee discount will be refunded to you once your policy is issued. Submit your documents for getting your policy issued and get 5% employee discount


    9

    The percentage savings is for a regular pay Max Life Smart Secure Plus Plan ( A Non Linked Non Participating Individual Pure Risk Premium Life Insurance Plan, UIN - 104N118V06)– Life Option for 1 cr life cover for a 35 year old, non-smoker male for a policy term of 40 years vs a 10 year policy term with the same details’

    ~*Standard premium for 24-year old healthy male, non-smoker, 25 years policy term,25 year premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan (UIN:104N118V06)

    **Healthy non-smoking male, 24 years, 2 cr cover,25 years policy term,25 year premium payment term, exclusive pf GST for Max Life Smart Secure Plus Plan (UIN:104N118V06)

    ~~Healthy non-smoking male, 24 years, 1 cr cover,25 years policy term,25 year premium payment term, exclusive pf GST for Max Life Smart Secure Plus Plan (UIN:104N118V06)

    Max Life Smart Wealth Plan| A Non-Linked, Non-Participating, Individual Life Insurance Savings Plan| @Rs.9,68,800/- as lump sum at the end of 15 years, for 35 years old healthy male.

    ARN - ARN/Web/01/21042021

    Past performance of the investment funds do not indicate the future performance of the same. Investors in the Scheme are not being offered any guaranteed / assured returns.The premiums & funds are subject to certain charges related to the fund or to the premium paid.

    The premium shall be adjusted on the due date even if it has been received in advance.

    For Total Installment Premium -**Total Installment Premium is the Premium payable as per premium paying frequency chosen, it excludes GST and applicable taxes, cesses or levies, if any; and includes loadings for modal premiums, Underwriting Extra Premium and Rider Premiums if any.

    For Return of Premium -~The Return of Premium Option is available on payment of Additional Premium. Premium does not include amount paid for riders and is excluding taxes, cesses and levies. Upon Policyholder's selection of Return of Premium variant this product shall be a Non-Linked Non-Participating Individual Life Insurance Savings Plan.

    For Riders -#Applicable Rider available on the payment of Additional Premium is Max Life Critical Illness and Disability Rider | Non-Linked Non-Participating Individual Pure Risk Premium Health Insurance Rider |UIN: 104B033V01 . Critical Illness and Disability Rider variant opted is Platinum Plus which covers 64 critical Illnesses. The rider cover will only be paid in scenarios where customer is diagnosed with listed 64 critical illnesses or total and permanent disability. Rider will terminate after major critical illness claim is paid to the policyholder. In case customer requests for cancellation of rider only, the solution as a whole will be cancelled and not just the individual rider.

    For Additional Benefits -##On Payment of Additional Premium. The accident cover will only be paid in scenarios where death occurs due to accident.

    *~Disclaimer | Max Life Smart Secure Plus Plan. A non-linked non-participating individual pure risk premium life insurance plan |Benefit available with special exit value -Total premium paid inclusive of any extra premium but exclusive of all applicable taxes, cesses or levies & modal extra. The premium calculated as per Standard premium for 30 year old healthy male, non-smoker, 40 years policy term, 40 years premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan.

    6

    Applicable for Titanium variant of Max Life Smart Fixed-return Digital plan (Premium payment of 5 years and Policy term of 10 years) and a healthy male of 18 years paying Rs. 30,000/- per month (exclusive of all applicable taxes) with 7.50% return. Life Insurance is available with this product.

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    Policy continuance benefit is not available with lifelong wealth variant. **The accrued income will be accumulated on an annual basis at the prevailing reverse repo rate (publish on RBI’s website).

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    With “Save the date”, you can choose to take your annual income to any special date in a year.

    ***Available with early wealth variant. Income benefit will be paid as per selected plan terms.

    ~

    Accidental death benefit is available in call variants except for Single premium variant. Life insurance coverage is available in this product.

    #~

    Term Insurance plan bought online directly from Max Life Insurance has no commissions involved.

    ~1

    Max Life Smart Secure Plus Plan, A non-linked non-participating Individual Pure Risk Premium Life Insurance Plan| Standard Premium for 30 year old healthy male, non-smoker, 40 years policy term, 40 year premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan| ~1 Conditions for special exit value: Option to receive all premiums paid back, at a specified point in the term of the policy (free of cost). Available when Return of premium variant is not chosen. No additional premium to be paid. Option to receive all premiums back (exclusive of GST). Flexibility of exiting the plan early. Special Exit Value cover applicable till age 68 & above (of your age). T&C Apply.

    6

    Applicable for Titanium variant of Max Life Smart Fixed-return Digital plan (Premium payment of 5 years and Policy term of 10 years) and a healthy male of 18 years paying Rs. 30,000/- per month (exclusive of all applicable taxes) with 7.50% return. Life Insurance is available with this product.

    **

    Max Life Critical illness and Disability (UIN- 104B033V01) available as a rider on payment of additional premium. 64 critical illnesses covered in platinum and platinum plus variant on payment.

    *

    Available on Payment of Additional Premium. The accident cover will only be paid in scenarios where death occurs due to accident.

    7

    Available with Max Life Smart Wealth Plan (UIN: 104N116V08)

    8

    Available with Max Life Smart Fixed-return Digital Plan (UIN:104N123V04). The guaranteed benefits are available with selected life insurance plans & are applicable if all due premiums are paid.

    **Disclaimer: Standard premium for 24-year old healthy male, non-smoker, 25 years policy term,25 year premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan (UIN:104N118V06) with a life cover of Rs. 50 lakh.

    **Disclaimer: Standard premium for 24-year old healthy male, non-smoker, 25 years policy term,25 year premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan (UIN:104N118V06) with a life cover of Rs. 75 lakh.

    **Disclaimer: Standard premium for 24-year old healthy male, non-smoker, 25 years policy term,25 year premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan (UIN:104N118V06) with a life cover of Rs. 1.5 Cr.

    **Disclaimer: Standard premium for 24-year old healthy male, non-smoker, 25 years policy term,25 year premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan (UIN:104N118V06) with a life cover of Rs. 2 Cr.

    **Disclaimer: Standard premium for 24-year old healthy male, non-smoker, 25 years policy term,25 year premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan (UIN:104N118V06) with a life cover of Rs. 5 Cr.

    **Our Life insurance policies cover COVID-19 life claims under life insurance claims, are subject to applicable terms and conditions of the policy contract and extant regulatory framework.

     

    Disclaimer~*Standard premium for 24-year old healthy female,non-smoker, 25 years policy term, 25 year premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan (UIN:104N118V06)

    ~^Disclaimer: 5 year return (CAGR – Compound Annualised Growth Rate) from Max Life High Growth Fund (ULIF01311/02/08LIFEHIGHGR104) as on 31/05/2023| 2Nifty Midcap Free Float 100% (5-year return) | For more details on risk factors, terms and conditions and products offered.

    ^~The assumed rates of return (4% p.a. and 8% p.a.) shown in the illustrative example are not guaranteed and they are not the upper or lower limits of what you might get back. The value of your policy depends on a number of factors including future investment performance. The amount shown is for a 30-year-old healthy male, with 10 years premium payment term, and 35 years policy term with Max Life Online Saving Plan (Unit Linked Non Participating Individual Life Insurance Plan | Life Insurance is available in this product).

    **Disclaimer | Max Life Smart Secure Plus Plan. A Non Linked Non Participating Individual Pure Risk Premium Life Insurance Plan. | **Standard Premium for 24 Year Old Healthy Female, Non-smoker, 25 Years Policy Term, 25 Year Premium Payment Term (exclusive of GST) for Max Life Smart Secure Plus Plan. | For Male, the Total premium to be paid in 25 years is Rs.2.09 lakhs (exclusive of GST). ~As compared to the similar modal points of Male, Female has to pay Rs.13,800 lesser premium than male for the entire policy term (exclusive of GST).

    ~3Disclaimer: A 35 year old female opting for a life cover of Rs. 1 Cr till the age of 75 years pays Rs. 3,319 monthly for 10 years while a 35 year old male will pay Rs. 4,168 monthly for 10 years

    7Disclaimer : Rs. 1,00,29,587 after 14 years at policy maturity on monthly investment of Rs. 16,600 for 12 years for 30 year old male with Max Life Smart Wealth Plan – Long Term Variant. A non-linked non-participating individual life insurance savings plan. The guaranteed benefits are applicable only if all due premiums are paid. Total premiums paid is exclusive of GST. Life Insurance is available in this product. ARN: WP/SWP/250723.

    Disclaimer: ~10 year CAGR of Nifty SmallCap 250 Quality50 index as on 24/07/2023. Max Life Nifty Smallcap Quality Index Fund is passively managed Index fund that tracks the Nifty SmallCap 250 Quality50 index (subject to tracking error).