FDs (Fixed Deposits) continue to be the number one option for people who do not want to take risks while investing. Their biggest attraction is the guaranteed return, irrespective of the market condition.
If you are among those who wish to have guaranteed returns and are willing to take zero risks, consider initiating a fixed deposit today. Read on to learn its benefits.
Why You Should Consider Including FD in Your Investment Portfolio?
Although many easy-to-access investment tools have come up, financial experts still consider fixed deposits one of the primary investment strategies. The reasons are pretty straightforward and have been discussed below:
Involves little to no risk
Unlike stock market investments, fixed deposits aren’t subject to market volatility. These debt-linked plans assure limited but secured returns to investors after the lock-in period. Thus, budding investors are advised to park their money in bank FD accounts as it will never require real-time management, and the fixed FD interest rate will ensure guaranteed returns.
Besides beginners, if you are willing to keep a large chunk of your capital safe and don’t intend to lose its value because of inflation, consider starting this investment option.
Ensures several tax exemptions
Depending on your deposit type, tax exemptions can be claimed for up to ₹1.5 lakhs following the provisions of Section 80C. Moreover, if you are a senior citizen, no income tax liability remains for annual interest earned up to ₹50,000 against FD investments. Even if you are not yet 60 years old, no TDS gets sanctioned on the due interest earnings of an FD for up to ₹40,000 every year.
Offers quick renewals
Fixed deposit renewals are one of the most convenient ways to grow one’s wealth exponentially. Depending on your preferred renewal terms, the bank sets a lock-in period that enables disciplined investments for fulfilling any financial goal. Once the deposit matures, as an investor, you can easily renew the investment, and in some cases, you can earn a better interest rate as well.
Allows emergency withdrawals
People often believe that the bank allows premature withdrawal rights to fixed deposit account holders under no circumstances. However, the truth is quite the opposite and financial institutions permit their customers to withdraw the deposited sum partially or fully in exchange for a nominal penalty. Generally, these penalty charges do not cross 0.5% – 1% of the deposited capital.
Helps get a loan against investment
This feature is always seen as an added benefit during acute financial emergencies. Using your deposit as collateral, you can secure the financing you need. The loan amount, however, remains 70% to 90% of the FD amount.
One of the greatest advantages of availing a loan against FD is that it incurs lower interest when compared to unsecured loans. However, the typical repayment period is the remaining months until maturity.
So, these were the 5 top reasons that make fixed deposit investments lucrative for people looking forward to kick-starting their wealth-making journey.
Who Should Invest in FDs?
A wide range of people can consider investing in FDs which makes them popular among Indians. Here you can see some groups who are highly advised to initiate fixed deposit investments:
Instead of idly keeping the excess funds in a savings account, irregular income earners may park that amount in an FD account until the time they won’t need it. This provides a sense of financial security and puts restrictions on unnecessary expenses.
Switching to FDs investing is ideal if you do not wish to spend a lot of time studying the stock market strategies and implementing them. It ultimately helps you earn a predetermined sum without worrying about volatility factors.
For retirees with no pension income or other sources of revenue, FDs serve as a regular income stream. Financial security gets established throughout the retirement years as banks disburse the money monthly, just like the pension credit procedure.
Comparative Analysis of FD Rates Provided by Various Institutions
|FD Provider||Interest Rates||Tenure|
|SBI Bank||Up to 6.10%||7 days – 10 years|
|HDFC Bank||Up to 6.25%||7 days – 10 years|
|Axis Bank||Up to 6.50%||7 days – 10 years|
|Max Life Insurance||Up to 7.50%||7 days – 10 years|
|Shriram Finance Ltd||Up to 8.18%||12 months – 5 years|
|Canara Bank||Up to 6.50%||7 days – 10 years|
|Mahindra Finance||Up to 7.75%||12 months – 5 years|
|Bajaj Finance Limited||Up to 7.65%||12 months – 5 years|
|IDFC First Bank||Up to 6.00%||7 days – 10 years|
|Sundaram Finance||Up to 7.75%||12 months – 3 years|
What are the Things to Check Before Investing in FDs?
Any financial planner will advise you to check multiple key factors before choosing an FD partner. These elements include:
Rate of Inflation
Inflation gradually diminishes the purchasing power of your earned money. Hence, consider starting an FD with an interest higher than estimated inflation. Also, the interest on fixed deposits does not change, irrespective of the inflation rate.
Tax-saving FDs constitute a specific category that allows you to enjoy TDS exemption for income earned up to ₹1.5 lakhs in a financial year.
Cumulative and Non-Cumulative Fixed Deposits
Cumulative FDs enable you to reinvest the interests credited in each quarter or at regular intervals. Whereas non-cumulative FDs do not exhibit this feature, and thus you cannot further leverage from compounding. Instead, you can use it to generate regular income. You can use an FD calculator to learn more about the returns. Having said that, as a prospective investor, you should know the ways you can better your investment by harnessing the power of compounding.
Most Indian investors consider including FDs in their portfolios as these instruments have been regarded as safe for years. They are simple to manage, completely detached from market fluctuations and provide stable interest earnings.
FDs do not offer a standardised interest rate and tend to vary for different banks. So, the first thing you must do is compare the FD rates of various financial organisations.
Next, adjust a favourable tenure by analysing whether the maturity amount will be able to beat inflation. Then, filter out the FD provider options by mentioning your desired frequency of interest payouts, and finally, select a mode of payment.
Though not as riskier as equity funds, certain market factors can still influence the returns generated from debt funds. Often inefficiency of the fund managers in market prediction can also lead to losses for debt fund investors. All these issues can be assuredly avoided when you invest in an FD. Thus it is undoubtedly better.