Fixed Deposit – What Makes it a Preferred Investment Option?

September 25, 2020 6:46 PM

In a fixed deposit scheme, you deposit a lump sum amount with the bank and choose tenure. The deposit starts earning interest at a pre-decided rate.

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We barely exercise any control over the twists and turns of life, a truism that has only become more apparent than ever in recent times. Given the uncertainties of life, it only makes sense to plan and save for the rainy day. Amongst the many financial products in the market, fixed deposits (FD) have stood the test of time as a safe and flexible saving option.

Reasons to Invest in an FD

In a fixed deposit scheme, you deposit a lump sum amount with the bank and choose tenure. the deposit starts earning interest at a pre-decided rate.

In comparison to other fixed-income products like PPF (Public Provident Funds) and SCSS (Senior Citizens’ Saving Scheme), fixed deposits are far more assured in terms of returns. Since the returns are not dependent on market conditions (unlike mutual funds, equity), there is minimal risk attached to this investment option. Even before you park your money in an FD, you can be certain of the returns to expect.

If you’re looking to park your savings in a reliable financial product that always offers some sense of certainty, here are some compelling reasons to invest in a fixed deposit.

FDs Are Safe From Market Fluctuations

The pandemic has not only affected individual financial stability but has also resulted in market volatility. A high-risk investment option like equity in such scenarios is only bound to harm your returns. An FD, on the other hand, keeps your money safe from the vagaries of the market. The interest you earn on the deposit is locked for the entire tenure and is not affected whatsoever by external conditions.

Flexible Tenure

Given the current situation, you might need liquidity at some point in time. A fixed deposit gives you the flexibility to withdraw your money when you need it. As opposed to fixed-income products, which usually come with rigid terms, fixed deposits allow you to choose tenure depending on your financial goals. You can also make partial or full withdrawals (after paying some fee) or even obtain loans against your fixed deposit in times of financial emergency. Therefore, with fixed deposits, your money is never ‘stuck’.

Better and Flexible Returns

Fixed deposits usually offer higher returns when compared with other equally safe investment options, such as a savings account. Moreover, they allow you to choose the frequency of returns – monthly, quarterly, half-yearly, yearly or cumulative interest options. Depending on your goals – investing for retirement, for extra income, saving for children’s education, etc. – choose between these frequencies. If you happen to be investing for the sole purpose of growing your money, and are certain that you won’t need it during the gestation period, go for a cumulative interest scheme to earn a higher return.

Regardless of your risk appetite, it is imperative to diversify your portfolio and include secure options in it. These unprecedented times have made the importance of safe investment options all the more clear. Given the many benefits of investing in a fixed deposit, it is the way to go for your peace of mind and to build a secure financial future.

(This article is sponsored by Indusind)

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