BENEFITS OF INVESTING IN FIXED DEPOSITS

A fixed deposit involves locking a sum of money for a specified duration, chosen by the investor. This period varies from days to years. In exchange for this, fixed deposits provide a predetermined interest rate. Banks provide fixed deposits at varying rates, easily accessible through online or offline channels. In India, a fixed deposit stands as a favored investment choice. Many individuals view it as the prime option, allocating a substantial part of their savings to this avenue.

“Fixed deposit interest rates are usually higher than those of savings accounts.”

BENEFITS 

Fixed Deposits offer a range of benefits that make them attractive options for both conservative and risk-averse investors. Here are the key advantages of investing in fixed deposits:

1. Assured Returns

FDs provide a fixed interest rate that remains constant throughout the investment tenure. This predictability allows investors to estimate their returns accurately, making FDs a reliable source of income.

2. Capital Preservation

FDs are considered low-risk investments, especially when offered by reputable banks or financial institutions. Your principal amount is generally safe, making FDs suitable for preserving capital.

3. Flexibility

Banks offer various FD tenure options, ranging from a few months to several years. This flexibility allows you to align your investment horizon with your financial goals.

4. Liquidity

While FDs are relatively less liquid than some other investments, they still offer a degree of liquidity. Most FDs allow premature withdrawals, although a penalty or reduction in interest may apply.

5. Regular Income

FDs can serve as a source of regular income, especially when you opt for interest payouts at regular intervals. This can be particularly beneficial for retirees or individuals seeking supplementary income.

6. Safe Investment 

FDs are typically insured up to a certain limit by deposit insurance schemes provided by governments. This adds an extra layer of security to your investment.

7. No Market Fluctuations 

Unlike equity investments, FDs are not subject to market volatility. Your returns are not influenced by daily market fluctuations, providing peace of mind.

8. Diversification 

FDs can be a valuable component of a diversified investment portfolio. They offer stability and counterbalance riskier investments.

9. Tax Benefits 

Some FDs, like Tax-saving FDs, offer tax benefits under specific sections of the Income Tax Act. These FDs can help you save on taxes while earning fixed returns.

10. Investment Discipline 

FDs encourage disciplined saving and investing as your funds are locked for a predetermined period. This can help you achieve your financial goals systematically.

11. Easy to Understand

FDs are straightforward investment products, making them accessible to a wide range of investors, including those who may be less familiar with complex financial instruments.

12. Fixed Deposit as Loan Collateral

A fixed deposit (FD) stands as a reliable asset for unforeseen financial contingencies. Acquiring a loan using an FD as collateral is a straightforward process. Depending on the bank, you can secure a loan of up to 95% of the FD amount, underscoring its dependable nature as an investment.

DIFFERENT TYPES OF FIXED DEPOSITS 

Diverse choices in Fixed Deposits for your investment are as follows:

• Accumulative Fixed Deposits

Termed aptly, these fixed deposits encompass compound interest, which is periodically added to the invested sum. Investors receive the total payout upon maturity. Alongside the investment benefits, these deposits allow you to request loans and overdraft facilities. Pre-maturity withdrawals are possible, though a penalty is applicable.

• Non-Cumulative Fixed Deposits

Investors in non-cumulative fixed deposits receive regular interest payouts, serving as an ideal avenue for consistent income generation.

• Flexi Fixed Deposits

Flexi fixed deposits combine the merits of fixed deposits and savings accounts. They offer a high-interest rate akin to fixed deposits while ensuring the liquidity typical of savings accounts. A “sweep-in and sweep-out” mechanism directs surplus savings into the FD, which can be liquidated based on preset account terms.

• Tax-Saving Fixed Deposits

Banks present tax-saving fixed deposits, permitting investors to claim tax deductions up to Rs. 1.5 lakh per annum (under Section 80C of the Income Tax Act). Typically, these accounts entail a mandatory five-year lock-in period.

• Senior Citizen Fixed Deposits

Individuals aged 60 or above can avail senior citizen fixed deposits, which offer superior interest rates compared to regular fixed deposits.

CONCLUSION

Fixed Deposits offer a host of benefits that appeal to investors seeking stability, regular income, and capital preservation. While they may not provide the high returns associated with riskier assets, FDs remain a reliable choice for individuals looking for a secure investment avenue. As with any investment, it’s crucial to assess your financial goals, risk tolerance, and investment horizon before allocating funds to fixed deposits.

Also Read:- FIXED DEPOSITS VS RECURRING DEPOSITS