Benefits of Investing in Fixed Deposit
Everybody is aiming at creating wealth and increasing their capital over a certain time span. There are a number of financial instruments available today, which are correlated with future growth and rate of return. Not investing in growth tools means, you are losing out on financial progress. Understanding which investment choices suit your needs can be one of the most challenging tasks in the creation of a financial plan. Nearly every person you meet has some form of financial advice, which makes you even more confused. Nonetheless, you have the ability to make educated decisions based on actionable knowledge, thanks to the internet era.
Although investment strategies are customized according to our goals, desires, and needs, there are certain financial instruments that should be included in each portfolio. One such financial instrument offered by the banks and non-banking financial companies (NBFCs) is a fixed deposit (FD). There have been varying discussions regarding the conventional fixed deposit financial instrument, and it is still one of the cleverest investment options that can find a place in your investment portfolio. Hence, you should definitely, invest in fixed deposit. Whether you are contemplating your first step in FD online or you are an experienced investor, here are a few advantages of fixed deposit investment:
Simple to understand
The simplicity of the financial instrument, is perhaps one of the best fixed deposit account advantages. As safe it is to invest in fixed deposit, it is equally simple to understand. For instance, an investment of Rs. 1 lakh at 7.5% interest would yield a profit of Rs. 7,500 (compounding quarterly). The fluctuations in the stock market will not drag this profit down. In comparison to financial instruments such as equity securities, there is no need to track the investment in a fixed deposit on a constant basis. A fixed deposit investment does not include ‘highs’ and ‘lows’ linked to the economy.
Facility to avail a loan against your fixed deposit
Instead of taking an unsecured loan with a high interest rate, fixed deposit holders have an opportunity to take advantage of a loan against their investment. Certain fixed deposits, have loan facilities that provide you with easy access to capital in the hour of an emergency. To avail this facility, a minor rate of interest (0.5% to 2%) is levied. In this way, an person can take advantage of the loan facility without going through the trouble of unsecured loans and at the same time not sacrificing interest on SCUF deposits online. Benefits of fixed deposit account such as these, make the option of fixed deposits all the more enticing.
The wonder of compounding
“The more we progress the more we tend to progress. We advance not in arithmetical but in geometrical progression. We draw compound interest on the whole capital of knowledge and virtue which has been accumulated since the dawning of time.” — Sir Arthur Ignatius Conan Doyle KStJ DL
Individuals can start early and increase their wealth over time with the effect of compounding. Compound interest can assist a small investment to turn into a large sum over time. There are two ways in which interest earned in deposits is paid — cumulative and non-cumulative. In a cumulative deposit option, interest is accumulated over a period of time upon which further interest is earned (compounding effect). The interest is paid along with the principal amount to the investors upon the maturing of the investment option. The power of compounding is one of the topmost advantages of fixed deposit investment. Hence, you should surely, invest in fixed deposit.
A non-cumulative deposit option is the opposite of the cumulative deposit option. In this variant of the deposits, interest is paid to the investors at regular intervals. These intervals are chosen by the investor/ depositor themselves and can be as follows:
- Monthly
- Quarterly
- Half Yearly
- Yearly
The non-cumulative deposit alternative is ideally fit for individuals looking for a regular income. On the other hand, it is recommended that individuals who have recently started their professional journeys invest in cumulative options for higher returns by allowing the power of compounding work for them.
Fixed deposit account advantages such as these, make the option of fixed deposits all the more attractive.
Higher FD interest rates for senior citizens
Getting best FD rates for senior citizens is one of the best benefits of fixed deposit account. In India, senior citizens are granted higher interest rates on their fixed deposit investments. Nearly all of the nation’s non-banking and banking institutions follow the same pattern. Senior citizens earn preferential interest rates, which are 0.25 to 0.65 percent higher than the standard FD interest rates offered.
Tax-saving
Investors can opt for tax-saving fixed deposits online variants, which are provided by all banks. Such an investment would allow you to bring down your taxable income, which will also reduce the tax payable. Individuals can invest up to Rs. 1.5 lakh in a tax-saving FD online, and this investment can be declared under section 80C of the Income Tax Act or 1961. Such schemes or fixed deposits online options have a 5 year lock-in period associated with them. Premature withdrawals from this option are barred except in case of the untimely demise of an investor. Tax-saving is known to be one of the most alluring fixed deposit account advantages.
High Security
High security is perhaps, one the best benefits of fixed deposit account. Safety and low-risk are the parameters to look out for in investment options when you have a low-risk tolerance level. Companies such as ICRA Limited, provide ratings for financial instruments based on the safety of funds. The ‘MAA+’ is the highest rating for public deposits offered by ICRA Limited. The rating of ‘MAA+’ for a financial instrument indicates that it has the lowest credit risk. Searching for a fixed deposits online, which has the highest interest rates with ICRA rating of ‘MAA+’, is a smart way to diversify your capital without compromising on returns.
Low risk
Having a low risk on your investment is one of the best advantages of fixed deposit investment. One of the safest and oldest investment options provided by financial institutions across India is the fixed deposit. There have been a few arguments stating that variable income instruments generate higher returns as compared to fixed deposits. It is true, variable income investment options such as derivative instruments, mutual funds, and equity shares, do yield higher returns. However, these instruments are associated with higher risks.
The investment decisions of an investor are often guided by their level of risk tolerance. When aiming for higher returns, there is always an element of higher risk, which can cause a significant loss to the investor in adverse market conditions. An ideal investment portfolio should be a mixture of risk-free and risky instruments, according to the level of risk tolerance of an individual. Wealth management experts assess your levels of risk tolerance, investment goals, and help you achieve the best FD rates and make informed decisions.
Final thoughts
Fixed deposits are suited to fulfil all your needs, be it the comfort of benefits and returns, surety, or security. These aspects coupled with best FD rates, hence, make FDs a no-brainer to be included in one’s investment portfolio. FD online schemes are designed to serve the investment goals and risk appetite for different types of investors. Whether you have a low-risk tolerance level, want a safe and secure way of earning returns, or you have a high-risk tolerance level and wish to cap your investment, FD is the way to go! Start a fixed deposit now, to earn guaranteed returns!
Before investing, it is important that you read the policy documents carefully. It is of utmost importance to read the policy documents to understand what you are investing in, and the services you will get with your investment. Although fixed deposits have, a low risk compared to variable investment options or investing directly in the stock market, it is imperative that you gain as much knowledge as you can about the instrument in which you wish to invest. Knowing about fixed deposits thoroughly will help you make educated choices and enjoy higher rewards with lower risk.
