Although investments are customised mainly to our wants, expectations, and ambitions, for each portfolio, there are a few critical financial instruments. And a fixed deposit (FD) is one such instrument.
Indians are known for their saving tendency. And risk-averse investors have tended to place their capital in fixed income options for decades, such as fixed deposits, which offer assured returns.
Hence, for many, FDs are one of the safest investment options, especially when contrasted with stocks or any other market-linked instruments. The corpus you set aside in FDs, with low volatility, acts as a perfect way to guarantee that your capital is secure. If you are starting with various investing choices, then a simple way to arbitrate your risks and earn a guaranteed sum at maturity is to spend the same amount as your money.
Due to the regime of falling FD interest rates and the increasing awareness about long term investment in equities, most young investors opt for investment in market-linked items such as mutual fund portfolios, as a safer choice for longer-term investment. Although this is a significant step, it should not mean that fixed deposits are not included in the portfolio or should not be part of it.
Fixed deposits can be an outstanding addition to your portfolio, and the four main advantages of fixed deposits investments are:
Fixed deposits help in mitigating portfolio risk
Allocating assets is the secret to generating money. Various asset groups, such as equities, instruments of fixed income, gold, etc., have different portfolio positions. Thus while mutual funds provide the capital with the long-term growth opportunity of equities, fixed revenue items such as fixed deposits provide security as their returns are assured.
A well-diversified portfolio (including FDs) means that the swing of return is kept low to have a stress-free trading experience.
Fixed deposits are a reasonable alternative for targets which cannot delay
FDs promise a fixed maturity return. If there is a financial target which can’t wait for you and you need a certain sum of money, fixed deposits are suitable for such investments within a given time frame.
For instance, in two years, you will need ₹ 4 lakh for your child’s college fees. Here you know the exact amount and time frame. Now you know about the maturity sum when you invest the money as fixed deposits. You can then analyse the interest rate and tenure and deposit your money accordingly. This helps you accomplish your goal promptly.
Fixed deposits are an excellent way of achieving short-term goals
The short-term objectives are to be achieved in 1 to 3 years. The aim here is to preserve the capital and at the same time, earn a little return. Fixed deposits are, therefore, an excellent alternative to these investment objectives.
Suppose you want to go for a trip next year, or you want to buy an expensive gadget. You already know the cost of the journey or device and can thus invest the appropriate interest rate.
Guaranteed returns on FD’s maturity
You already know how much money you will receive from the FD as it matures when you invest in a fixed deposit account. Neither the market situation nor the floating of interest rate will impact the returns as agreed initially. This helps your plan and spending well as there are no surprises on the money coming.
Besides, your investment portfolio offers several other advantages for having FDs. Some Fixed deposits offer loan facilities that provide easier access to funds in the event of an emergency. Potential investors have the option of taking a loan against your FD investment to meet your financial needs.
Note: If you are looking for maximising your returns on a fixed deposit, it is suggested to open the FD account in the name of senior citizens as they are offered with higher FD interest rates than the regular FDs.
Conclusion: Regardless of whether you are looking for security, stability or convenience in terms of returns and benefits, FDs are suitable for every kind of investor. Also, its universal nature ensures that it can serve any investor as per their requirement. Whether you are looking for a high-risk investment that seeks to cap your capital invested or has a low-risk appetite and want a safe and secure way to earn more returns, the FDs are here to rescue you! Adding a fixed deposit to your portfolio is a smart investment choice. However, remember that they are ideal only for short-term targets. Equities are the best bet for long-term goals.