Here is Why FDs Still Make for a Great Investment Option
When it comes to investment options, a Fixed Deposit remains one of the most popular choices among Indians. However, before you proceed with opening an FD account, it is important that you understand the different things associated with it.
Here are the different ways in which an investment in an FD can prove beneficial:
- Assured returns and security of investment:
Investments in a mutual fund or stocks come with a certain amount of risk. There is a chance that you may incur a loss on your investment. However, when it comes to a Fixed Deposit, you can be certain of earning fixed returns.
As a result, an investment in an FD is a good option for someone who is not comfortable with taking on risky investments.
In case if you have opened an FD with a bank or a reputed financial institution, you can be certain that your investment remains secure. Moreover, it is assured that the financial institution will pay the returns. As per the regulation of the Reserve Bank of India (RBI), an FD account is covered by an insurance of INR 1 Lakh. This is for both the principal amount invested and the interest on it.
However, things can be slightly different for an FD opened with a company. Note that a corporate FD is not given against a collateral owned by the company. As a result, there is a risk that the company may default on paying the returns.
- Return on your investment:
An FD can help you earn more than what you would get from a Savings account. While a Savings account gives you an interest of 4%, various banks and financial institutions can give an interest rate of 6-8% on a Fixed Deposit. Note that for a corporate FD, this may be as much as 8-10%.
- Helps with Liquidity:
Even the best investors can sometimes face a cash shortage. In such a case, they can go for a personal loan or even decide to sell an asset. But instead of doing this they can also choose to take a loan against their FD.
Such a loan can have a lesser interest rate than that for a personal unsecured loan. Because in this case, the FD serves as a collateral.
- Flexible terms:
You can choose the tenure for an FD according to your investment needs. More importantly, you are also able to choose the way in which the returns are paid out. This may be on a yearly or monthly basis depending on the terms you choose.
You can also choose an FD that suits your financial needs with the help of online Fixed Deposit calculators. Herein, by entering various personal and financial detail, you are able to get more details for the terms of the Fixed Deposit.
Thus, FDs offer various benefits. But here are a few tips for investing in an FD for the best results:
- You can consider opening multiple FDs with various banks and financial institutions. In this way, if you ever require to withdraw cash, you will have to pay the penalty charges on only one small amount.
- Also, to improve liquidity and deal with changes in the interest rates over a time period, you can consider opening FDs with different tenures. For example, you can invest INR 3 lakhs in portions of 1 lakh each for different tenors of 1 year, 2 years and 3 years. Once an investment matures, you can reinvest it and look at improving on your returns.
A Fixed Deposit can certainly help you in earning good returns. But it all depends on how smartly and carefully you plan your investments.