If you are looking forward to creating an investment portfolio, the best way is start with fixed deposit. It is a type of investment offered by banks and non-banking financial institutions wherein you deposit a fixed amount of money for a fixed period, for instance, one year, to get a higher rate of interest than regular savings account.
Some people can suggest investing in shares and bonds. You can think shares can be good start, but they are extremely volatile, which is why they are subject to high risk. Bonds can also be a good way to get your feet wet, but they are not as convenient as fixed deposit.
If you literally follow the principle “Do not save what is left after spending, but spend what is left after saving”, fixed deposit investments are an ideal way. It may seem easy to apply for fixed deposit, but it is not that easy. Although you have to decide a particular amount of money for a particular length of time, there are still a lot of things you need to consider.
Investment decisions are to be taken after enough deliberation. An imprudent decision can keep you from maximizing the return. If you are investing in a fixed deposit, you should try to avoid the following mistakes:
Lack of investment goals
If you want to create an investment portfolio, investing in fixed deposit is more than saving money, and therefore you must have a purpose to do it. Having no goals while investing in fixed deposit will be like making a shot in the dark. It does not make sense to do it if you have no motivation to do it.
Having goals at the time of investing in fixed deposit can help you align it with other saving plans. It is crucial to have a goal because it can help you decide the term of the deposit. For instance, if you are saving money for future expenses, for instance, for your wedding, you can turn a large chunk of liquidity into a fixed deposit. It can be a great investment if you want to optimize your savings in the right way and get short-term gains.
Choosing long term for a fixed deposit
The longer the term, the higher the interest rate will be. Many people find it attractive to invest in a long-term fixed deposit because they offer a higher interest rate. Further, if you are saving money for futuristic big expenses, you will not mind to opt for it, but do not forget that you will get the same interest rate even if there is a change in the market interest rate.
For instance, you have got a fixed deposit at 5.4% for five years, and after three years, the market interest rates go up to 6.5%, you will continue to get the same interest rate, i.e. 5.4%. It means you will suffer from the loss by 1.1% that can be massive depending on the amount you have invested. Therefore, it is imperative to keep an eye on news headlines about fixed deposit. Though the interest rates change over several years, you should still be vigilant about the market.
Blocking your funds over a longer period can keep you from taking the advantage of higher interest rates if they are available down the line. Even though your aim is to save money for future expenses like wedding, try to choose a shorter period and at the time of maturity you can extend it for another period.
Not doing research
No matter how appealing the deal seems to you, you should be very careful while selecting a financial institution. There are plenty of banks offering fixed deposit at different interest rates. Even though you are more comfortable to apply for a fixed deposit with your bank, you should look for the market to find best fixed savings rates. Trying out a bank down the street can be a better option than your bank if that is offering competitive interest rates.
If you have a good relationship with your bank, ask them what benefits they can offer you as a premium customer. Banks always try to give special offers to their premium customers. Do online research and if you feel like contacting them to know more details, you should not hesitate.
When you hear the term diversification, you think about having multiple investments like shares, mutual funds, bonds, and the like, but you can diversify fixed deposit too. This is when you will need fixed deposit laddering. It means investing in multiple fixed deposits with variant maturity period. Fixed deposit laddering allows you to invest in short term and long-term investments, so you could reap short term as well as long-term benefits.
Fixed deposit is a great way to start building an investment portfolio. However, you will have to bear aforementioned points in mind to maximize your revenues.
Description: Fixed deposit is the easiest way to get a foot onto your investment ladder, but there are some rules you must know.