Over the years, individuals of all ages have developed the habit of investing and owning to the different investment goals of various investors, a wide range of investment schemes has been launched in the market. Among the variety of investment schemes, the crowd’s favorite is fixed deposits. Fixed deposits come with many perks. The list of benefits has grown even longer due to digitalization. Most banks and non-banking financial companies offer net banking services for fixed deposit schemes. Nowadays, you can conveniently open fixed deposit online and operate digitally.
If you are still wondering if the fixed deposit is the right choice for you, here are 5 reasons why you must add fixed deposits to your investment portfolio.
Security of investment and returns
Security becomes the key deciding factor while making any investment. In terms of security, fixed deposits come with dual benefits. The first one is the steady FD interest rate. The interest rates in fixed deposits remain the same throughout the deposit tenure, without getting influenced by any market ups and downs. Thus, you receive the expected returns without any complications at maturity. The other benefit is the deposit insurance scheme of DICGC. In case of any uncertain situation, this scheme will offer insurance coverage on FDs up to Rs. 1 lakh.
Although fixed deposits are a safe investments, you should always check the credit ratings of FD-providing banks and other financial institutions. Just like investors, credit ratings reflect the creditworthiness of fixed deposits.
Advantage of compounding
The compound interest formula is a great way of easy and quick wealth generation. According to this formula, along with the principal amount, interest accumulates on the interest as well. The cumulative fixed deposits calculate interest using the compound interest formula and help investors earn more. Note, that this formula is applied only for cumulative fixed deposits and not for non-cumulative fixed deposits. Make sure to invest in a cumulative fixed deposit to avail of this particular benefit.
Fixed deposits fall among the most flexible investment schemes. From deposit amount and tenure to payout, investors can enjoy maximum flexibility. You can start an FD with as low as Rs. 1000. The tenure can be set anywhere from 7 days to 10 years. You can also enjoy flexibility while opening an FD. Apart from the traditional offline mode, banks and non-banking financial companies allow you to open fixed deposits online as well. You can customize an FD based on your investment goals. For example, if your financial goal is long term and earning higher interest, you can invest in a non-cumulative fixed deposit. It will not allow a regular payout, but it will fetch greater returns in the long term.
On the contrary, if you require a regular source of income, for paying monthly bills, EMIs, or so on, you can invest in a cumulative FD that will allow you to go for a regular payout of your preference.
Easy access to funds
You have easy access to your money even after you deposit in a fixed deposit. As said earlier, you can opt for a regular payout. Many FDs allow you premature or partial withdrawal, in case you are in need of urgent finance. Premature withdrawal can be subject to some fees or fines.
FDs can further help you avail of a loan during financial crunches. A loan against FD has many advantages. To begin with, they are easy to avail, since your FD acts as a security on your behalf. Moreover, the rate of interest for loans taken against FDs are lower than other loans.
The right investment choice requires proper investment strategy and monitoring of the market. This is not the case for fixed deposits. Doing research on various fixed deposits before starting investing is essential. However, once you have opened your fixed deposit, you need not worry any further. There is no need to observe the market or the performance of your respective fund. Just invest your money, let it accumulate interest, and withdraw the total corpus at maturity.
Investing in FD is the safest way to grow your earnings and has many positives. The security and high returns make fixed deposits the best investment option for beginners and even for experienced investors and investors who have a high appetite for risks. Having a fixed deposit in your investment portfolio, among other risky investments, will definitely provide you with a sense of security.