Indians are generally known for working hard and saving regularly. Saving for a rainy day, a dream house, a children’s wedding, healthcare, or any goal that may inspire you. But saving can also earn additional income if you invest the surplus amount wisely. Therefore, investment is an important decision. Weighing the risks and returns before you take the plunge is an intelligent approach. The fixed deposit is a financial instrument to kickstart and build your investment portfolio. FD remains a trusted and popular investment option in India as a simple way of saving and accumulating a corpus. While fixed deposit interest rates in India are not fixed, FD is an option to explore. It would help if you considered it while planning your investment portfolio.
Some pros and cons that can help you decide whether FD is good or bad for you:
Advantages of Investing in FDs
● Secured Investment: The most significant advantage of investing in a fixed deposit is that the invested amount is safe. Other market-linked instruments, such as stocks and mutual funds, may offer better returns. However, the market can be volatile and also result in losses. Therefore FD is a safe investment option.
● Guaranteed Returns: Fixed Deposit Rates in India are decided by banks depending on the economic conditions. RBI policies related to lending rates are also taken into consideration by the banks. FDs offer guaranteed returns per interest rates published on the bank’s website and branches. You can determine the maturity amount using a fixed deposit interest calculator.
● Flexibility: You need to invest in a fixed deposit for a minimum tenure. However, FDs offer flexibility in terms of tenure, and the investor can decide the tenure of the deposit. Redeeming or renewing the FD is also up to the depositor. Depending on India’s prevalent fixed deposit rates, you can decide whether to renew the FD. You can also choose to invest the maturity amount in some other instrument.
● Liquidation: In case of needs, a fixed deposit can be easily liquidated. Liquidation can be done using an online banking facility or by visiting the branch.
● Loans against deposit: FDs are a great way to safeguard yourself against financial emergencies. Depending on the bank’s guidelines, you can take collateral OD/Credit Card against FD up to 90% of the amount invested.
● Income Tax-Related Benefits: Long-term FDs provide tax benefit options. The banks do not deduct any interest till the total interest accrued exceeds Rs. 10,000. This is especially beneficial for small deposit holders.
Disadvantages of Investing in FDs
● Fixed Interest Rates: Fixed deposit interest rates in India fluctuate, and these rates have recently been reduced. They are not aligned with inflation, so your FDs may earn less than the inflation rate.
● Liquidity: While it is a safe investment tool, the FD locks in your funds for a fixed tenure selected.
● Penalty for Premature Withdrawal: Premature withdrawal of funds attracts a penalty. Although liquidation is possible, some types of FDs do not provide this facility.
● Taxable Income: Interest earned on a fixed deposit is taxable, and deduction is provided only for long-term FDs. Senior citizens can receive a deduction of up to Rs. 50,000 on the interest earned.
● Interest Rate is Fixed: A fixed deposit interest rate calculator uses inputs – principal, tenure, and interest rate to calculate the maturity amount. The interest rate is fixed. Even if the rates increase, the additional interest is not paid to the depositor.
You can use the fixed deposit interest calculator to determine the maturity amount. Decide the best tenure depending on the fixed deposit interest rates in India. If you want to earn a fixed monthly income from your savings, FD is a good option. Some banks also offer a sweep-in facility. The sweep-in facility can move excess funds in the savings accounts to a new fixed deposit. Thus, you can also increase the returns from fixed deposits.
A good investment portfolio never keeps all eggs in one basket. A fixed deposit can be an option due to its safety and guaranteed returns. If you have a low-risk appetite, you can opt for FDs. Choose wisely and when investing in FDs, check the fixed deposit interest rate banks offer.
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