Several investors in the digital age choose to invest in products linked to the market. Mutual fund investments are very popular currently. However, old is gold in terms of safe and secure investment options that you get when you invest in a fixed deposit (FD).
There are many reasons to invest in a fixed deposit, especially if you want to diversify your portfolio.
Read on to know briefly what a fixed deposit is and why it is a good investment product for you.
What is a Fixed Deposit?
A fixed deposit lets you place your funds with a bank or an NBFC for a set period (a term). Depending on the principal amount you invest and the rate of interest you earn from that principal, you may get interim payouts or a cumulative amount when your fixed deposit matures (comes to the end of its term).
Why is Fixed Deposit a good investment product?
Risk reduction
Among the key fixed deposit benefits is that fixed deposits create an allocation of your assets in a stable way. You may invest your wealth across many asset classes like gold, equity, etc. Various assets play different roles in your portfolio of investments.
Mutual funds, for instance, may promote long-term growth of your wealth. On the other hand, an FD gives you a steady flow of income and guaranteed returns.
A fixed deposit ensures that there is a balance of risk among all the asset classes in your portfolio, managing to be solid when other investments may take a swing.
Returns with a guarantee
Whatever type of FD you choose, you get guaranteed returns on its maturity. In case your financial goals warrant a need for more wealth in a stipulated period, a fixed deposit offers an assured solution.
Depending on what you invest, you are guaranteed to get returns according to the preset rate of interest on your fixed deposit. You can plan for future funding needs, and invest amounts accordingly with a tenure in mind, sure of getting a certain amount of interest and earnings on your deposit.
Selection of tenures/interest payouts
Not only can you select the periods of your deposit, but you can also choose the options of interest payouts. Interest payouts are typically categorized into cumulative and non-cumulative. A cumulative interest is interest that is earned on the fixed deposit and given to you with your principal amount at the time of maturity of the fixed deposit.
If you want your FD to yield a regular source of income, you may select a non-cumulative interest rate, and this means you get interest payouts on either a monthly, quarterly or bi-yearly basis, depending on your deposit tenure. Typically, investors who are senior citizens and depend on a regular source of income, choose non-cumulative fixed deposits.
Fund withdrawal flexibility
Fixed deposit benefits include the fact that after you invest, you may opt for premature withdrawal of your funds. In the case of an emergency, you may need urgent funding and a fixed deposit comes to your aid. If you do opt to close it before it matures, you may have to pay a specific penalty to the bank. However, if you are ever in a crisis, an FD gives you flexible withdrawal options.
Access to credit
Any type of FD gives you the advantage of access to more funding. You can take a loan against your FD, for example. Usually, banks grant you a loan up to 70% of the principal amount of the FD. Rates of interest against loans with an FD are kept low to encourage you to take them.
Meet short-term financial goals
In the event you wish to achieve a financial goal within 1 to 3 years of investment in an FD, this means you wish to fulfil a short-term goal. Any financial need may crop up, and an FD lets you preserve your principal and keep a little bit of the interest too. For instance, if you need funds for an expensive gift, you can fund this with your fixed deposit.
The end result
In recent times, there are several ways to earn money, especially through unconventional sources like NFT games and others. However, there are relatively less safer investment options for people to grow their money exponentially.
By opting for a fixed deposit, you can do a lot with your funds in a constructive manner. To fund short-term needs, an FD works as a source of credit. If you want a long-term investment with guaranteed returns. Whichever way you look at it, an FD is a super way to invest your wealth.
