Everyone appreciates a steady and consistent growth in their lives. So is the case with their money. You find yourself baffled in selecting the best investment alternative to park your surplus funds. You can stop your search right now! A Fixed Deposit is among the safer alternatives with the least risk profile to them.
Alternate options like a savings bank account are available to park your funds, but it does not generate an adequate return on investment (ROI). Mediocre growth, coupled with increasing inflation levels, tantamounts to no growth if observed from a broader perspective.
Some investors prefer to risk their corpus and head on the treacherous path of stock markets. Highly volatile and with a hit or miss can help you in achieving your financial goals but with the least certainty. While we rule out other investment avenues, let us have a look at why you should maintain a Fixed Deposit in your investment profile.
Least risk along with government-backed insurance cover
Fixed Deposit or FD are among the few investments, who have a government guarantee backed to them (subject to ₹1,00,000). Deposit Insurance and Credit Guarantee Corporation (DICGC) is a wholly-owned subsidiary of Reserve Bank of India that guarantees deposits. Deposits with commercial banks co-operative banks are covered under DICGC Cover. Apart from having an insurance cover, Fixed Deposits have the lowest risk profile. Fixed Deposit issued by non-banking financial institutions have a credit rating to them by reputed credit rating agencies like CRISIL or ICRA.
Attractive interest earnings
Fixed Deposit interest rates are higher than those offered on recurring deposit or savings bank account. The interest rate on a savings bank account is uniform for every person, while the senior citizens enjoy an advantage when it comes to parking their funds in a Fixed Deposit. They can enjoy the cumulative benefits of higher FD interest rates as compared to other investment avenues where they are on par with others.
Some Fixed Deposit have a tax benefit clause, meaning you can avail tax benefit under section 80C of The Income Tax Act, 1961. You can avail competitive FD rates on such tax saver FD’s, upwards of the six percent mark. The downside to a tax saver Fixed Deposit is the lock-in period. It has locking periods of 5 years, and premature withdrawal is not allowed.
Loan against investment
You can avail loan against Fixed Deposit investments. Banks and other financial institutions offer loans up to 90% of the amount of Fixed Deposit. If you have a low credit score or lack the income eligibility, you can avail such loan facility against your existing investments. The interest rates for such loans are affordable and have a flexible tenure for repayment. You can contact your financial institution for more details on it.
Other forms of investment like mutual funds, shares have brokerage charges both ways, i.e., buying and selling. The same is not the case of a Fixed Deposit. You do not have to pay any brokerage to the financial institution where you create an FD.
Compounding and Periodic payouts
Mutual funds having a fixed maturity or certain bonds have returns more or less around those offered by FD’s. But if you compare such forms of investments with a Fixed Deposit, you will notice that FD’s generate a consistent and better return year-on-year due to compounding.
Along with compounding feature, some FD’s payout the interest earned, which can help you plan your finances accordingly. You can take advantage of periodic payment during your retirement days when there is no consistent income source to rely upon.
A handy piece of information that vary from as low as 4 percent to 6.90 percent as per a recent compilation by bank bazaar dot com. Senior citizens get higher interest rates on such a Fixed Deposit. It is advisable to compare among the various financial institutes before buying yourself a favourable FD. Happy FD-ing!