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Why Should One Invest in Fixed Deposits

India has been always known as the country of savers. For decades, investors have chosen to invest their money in fixed income securities like fixed deposits. Here, investing infixed deposit is very popular for earning guaranteed returns.

However, due to falling bank interest rates and better investment options like equity and mutual funds, new generation investors choose to invest in market-linked products. But this does not reduce the importance of fixed deposits in your portfolio.




FDs can be a good addition to your investment portfolio and below are the reasons why

6 reasons why investing in fixed deposits is beneficial

  1. Reduce portfolio risk

The key to wealth creation is the allocation of assets. Different asset classes like equity, mutual funds, gold, etc bring varied returns on investment. For example, mutual funds give you money for the growth potential of equities over long term. On the contrary, fixed income securities like fixed deposits bring stability as the returns are guaranteed. A diversified investment portfolio makes sure the uncertainty in your returns is stabilized and you have a stress-free investing experience.

 

  1. Encourages the habit of saving

Saving is a habit not many excel at but wish to wish to inculcate for a good balance during times of need. Fixed deposits help is increasing savings. Since investing in fixed deposits does not include any significant risk, people are more likely to invest in FDs for increasing savings.

 

  1. Choice between cumulative and non-cumulative FD

Fixed deposits provide you with the option between cumulative and non-cumulative deposits. You can decide when you want to receive the interest. If you are dependent on the interest amount for paying off your monthly bills, EMI bills, etc. opting for quarterly or monthly payoffs is a good plan.

Alternatively, you can keep your deposit locked up until the end of your tenure. When you opt for cumulative returns, you gain from the compound interest which gives you high returns.

 

  1. Flexibility to withdraw funds

During financial emergencies, you can withdraw your FD before maturity. You might have to pay a certain fee. However, the process is simple. The flexibility supports you during financial crises. Being one of the secured and risk-free forms of investment, you can plan your future by building wealth.

 

  1. Tax saving investment

All banks and NBFCs provide tax saving fixed deposit options to their customers to bring down their taxable income. This pulls down the tax to be paid as well. These schemes come with a lock-in period of five years. The amount cannot be withdrawn before the stipulated time (only in case of the untimely death of the applicant, premature withdrawal is permitted.)

Avail loan on fixed deposits

Few financial institutions offer credit facilities against your fixed deposit account. Besides this, you can avail such loans without availing any additional eligibility requirements. Unlike fixed deposits, equity or mutual funds do not offer any credit facility.

 

  1. Acts an income plan for retired

If you invest your funds into non-cumulative fixed deposits after retirement, earning a regular and comfortable income from it is easy. This is especially useful for people who do not rely on another person for support for retirement.


Final words

Those willing to start a fixed deposit should have a minimum sum of Rs 5000 to invest. Moreover, though the returns are guaranteed, the returns might fall short for some to meet the financial goals of many individuals. Hence a segregated investment in multiple funds like equity, mutual funds through SIPs will help meet financial goals.

 

Nonetheless, fixed deposits remain a popular wealth-generating option and also is one of the simplest ways to start an investment portfolio.   

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