Invest in FD For a Risk-Free Portfolio
How FD is a Secure Option to Saving If you are planning to invest your hard-earned money, then return on capital, i.e. interest or profit is important. But more vital, today, is the return of capital, the principal amount you have invested.
FDs are considered a conservative financial instrument that earns fixed interest over the entire duration of the investment. Unlike the past, when your parents opened an FD account to meet future financial goals, the objective is different today. It is considered a reliable means to park your money that protects your capital rather than generating higher returns.
Is FD for Everyone?
A fixed deposit (FD) account is ideal for you if you have a low-risk appetite or are a senior citizen and are looking for assured returns.
Instead of keeping your funds idle in a savings bank account, a fixed deposit account will allow you to deposit your money for a specific time for a typically higher interest rate than what is offered for a savings bank account.
The recent worldwide stock market crash has taught us a vital lesson. The Covid-19 pandemic has crippled many – loss of jobs, salary cuts, postponed joining dates, recruitment freeze, mounting liabilities, and so on.
A person with an emergency fund in a fixed deposit account is better placed than many in this turbulent condition. Even if you have lost your job, you can use the money in your fixed deposit account to meet your liabilities – EMIs, rents, fees, etc.
Holding a fixed deposit account and creating a diversified portfolio is also necessary for those who focus on wealth creation.
Thus, a fixed deposit account is a must for all, maybe in different proportions and different tenure. It is irrespective of age, risk appetite, investment goals, and other factors combined.
How Will You Benefit From a Fixed Deposit Account?
- Safety & Liquidity with Fixed Returns – Irrespective of the market fluctuations, FD interest rates remains constant.
FDs are available for a wide range of tenure varying from 7 days up to 10 years. You can better manage your funds to get liquidity and some returns if you spread it across the term.
For instance, instead of locking in the whole fund for a 2-years deposit, you divide it across 1-3-5 year FDs. While doing so, your ongoing liquidity needs are met. Moreover, there could be higher rates on specific tenure.
- Higher Rates for Senior Citizens – If you are above 60 years of age, you can earn higher FD interest rates than regular FDs.
- Option of Reinvestment – You can opt for the reinvestment mode if you do not need regular income. In that case, the interest accrued gets reinvested after quarterly compounding. It is paid on maturity along with the principal amount.
- Tax Benefit – If you are a tax-payer, Sec 80C gives you tax benefits for investing in 5 years tax-saving FDs for a maximum investment cap of Rs. 1.5 lacs per annum.
Points to Remember
- For a Housing Finance FD, interest earned (across all branches) over Rs 5,000 a year (unless form 15 G/H is submitted) will attract TDS of 10 per cent on interest income.
- Premature withdrawal of an FD is subject to penalty.
If you are a smart investor, you can lock in current interest rates by opening a fixed deposit account before banks lower the FD interest rates.
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