While investments are mostly tailored according to your goals, wants and needs, some investment instruments are essential for every financial portfolio. Among all, one such plan is a Fixed Deposit (FD). While there is a lot that has been said about this traditional investment, it remains one of the smartest options that should be in your investment pool.
Fixed Deposits (FDs) are one of the most preferred options to invest your money and get assured returns. FDs empower you to control your financial risks and help fulfill your aspired goals for different life stages. These could include ensuring the future of your child, their education and marriage, or as a protection against unexpected expenses.
Whether you’ve been a long-standing FD investor or are planning to make this move now, here are some advantages of fixed deposits:
1. Low-Risk Investment Instrument
One of the safest investment options is a fixed deposit, especially when you compare it to stocks or any other market-linked instruments. The corpus that you set aside in a fixed deposit with low volatility serves as a great way to ensure your capital is safe. Investing the same amount as your money is an easy way to arbitrate your risks and receive an assured amount at maturity if you start with different investment options. You can even get tax benefits on investing in FDs under Section 80C of the Income Tax Act.
2. Benefit Of Compounding
With the power of compounding, one can begin early and multiply wealth. Compounding small amounts can become bigger when the compounded interest is reinvested with the principal amount ranges from 6 months to 10 years of fixed deposit.
Cumulative fixed deposit is ideal for those who do not require daily interest payments, as the interest is paid in addition to the principal at maturity. Therefore, cumulative fixed deposit schemes/compounding may be called money multiplier schemes. In comparison, interest is due at fixed rates in a non-cumulative fixed deposit scheme.
3. Easy To Select Mode Of Payment
You can choose the interest rate they wish to receive, whether on a monthly, quarterly, or annual basis. It will end up being another revenue source for you. Alternatively, you can opt for a cumulative fixed deposit that will reinvest interest in the FD, delivering even better returns.
4. Beneficial In Case Of Cash Crunch
The fixed deposit may be broken during an emergency time, and the money may be withdrawn. Banks charge a little amount as a penalty for premature breaking of a Fixed Deposit. It’s not a smart option to go for, however. Choosing a loan against Fixed Deposit is advisable instead of prematurely breaking the FD. The interest earned on a fixed deposit lowers the interest outgo on loan. In addition, customers do not have to pay any penalty, along with other expenses that come up.
So, whether you’re looking for returns and benefits or sheer comfort of security, a fixed deposit fits all your needs, becoming a must-have for any investor. Besides, this instrument’s universal nature ensures that it can serve different purposes for any investor. Whether you’re a high-risk investor looking to cap your invested capital, or you have a lower risk tolerance and want a safe and secure way to earn more returns, a fixed deposit is here to save you. However, you must select the bank carefully when investing in a fixed deposit. Many reputable banks such as Axis Bank, offer a reasonable rate of return. Check out their website or call the customer care to know more about it.