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Written by 12:30 pm Finance

5 reasons why you need to include FD in your investment portfolio

FD in your investment

There are several benefits of fixed deposits that we have predominantly ignored over the years. Agreed, FDs (fixed deposits) do not always provide inflation beating returns and once you take out the mandatory TDS (tax deducted at source) which is applicable if gains exceed Rs. 10,000 in interest, returns are quite lower than many other market instruments. Low-risk and secure FDs often translate into low-growth investments (as perceived) for many people who prefer investing in other risky yet rewarding channels.

However, all said and done, Fixed Deposits (FDs) continue to be the most preferred and popular investment channel in India, drawing a large chunk of the working population across ages, right from young earners to senior citizens alike. While there are tons of investment options other than FDs, these are always regarded as the safest and best form of investment and growing wealth. Investments are mostly synced towards specific personal goals, desires and financial objectives. However, there are always some financial investments that are a must for every investor’s portfolio. One such channel is naturally an FD or fixed deposit as mentioned previously.

Top 5 reasons for keeping FDs in your investment basket

There are various types offixed deposits including tax-saver FDs with mandatory lock-in periods of around 5 years and regular FDs with quarterly/monthly/annual/half-yearly payouts. Fixed Deposits have varying durations going up to 10 years on an average. Here are the five reasons why they should be included in your investment basket.

  • Risk Arbitrage– FDs are one of the safest options for investments, particularly when they are compared to stocks or other instruments linked to the market. With lower levels of volatility, the corpus kept aside in fixed deposits (FDs) will be a great way of making sure that your capital remains safeguarded. If you are just starting your investment journey, then investing the same amount as capital will be an easy method with regard to arbitraging your risks and getting an assured maturity amount at the same time.
  • Security Levels– Along with lower risks of products in the financial market, fund safety may be analyzed on the basis of the ratings given by organizations such as CRISIL. The F-Triple A (FAAA) security level is the highest such rating threshold for various financial instruments and indicates that interest and principal payments continue to be quite strong. Seeking out FD based products with FAAA CRISIL ratings that enable one of the highest rates of FD interest, will be a great method for balancing funds out without limiting overall returns.
  • Interest Rates– Returns are one of the key components emphasized upon by people when it comes to FDs (fixed deposits). Yet, in turn of the recent developments in the market, rates of interest have been going up, making this a great time to invest in a fixed deposit (FD). Selecting a suitable fixed deposit plan will naturally help you obtain more gains out of your investment.
  • Compounding- The sheer power of compounding is another major benefit of FDs. You can start from an early age and multiply your wealth/corpus with the power of compounding which is indeed amazing. Smaller amounts may go up to bigger corpuses due to compounding over a sustained period of time. Compounded interest, if reinvested with the principal money across 6 months to 10 years will give you excellent returns. Cumulative fixed deposits are ideal for those people who are not looking to get interest payouts on a regular basis. This will make sure that the interest is paid out at the time of FD maturity in tandem with the principal amount. Cumulative fixed deposit schemes may help in multiplying and growth wealth. Non-cumulative fixed deposits have interest paid out at pre-fixed intervals.
  • Additional Advantages– There are many other advantages that arise out of possessing fixed deposits (FDs) in the investment portfolio. This includes easier access to loan facilities, enabling easier fund access during emergencies whether you are seeking comfort/security in benefits or returns. Fixed Deposits will be in sync with all your financial objectives and basic desires, making them very important for each portfolio.

The universal nature of Fixed Deposits (FDs) as an investment type makes them ideal for every type of investor. It may serve varying financial purposes or cater to different goals down the line. The core premise of rock solid security, guaranteed returns and growing wealth remains the same. Irrespective of whether you are an investor who is open to taking risks and is looking to cap the capital invested or whether you have lower risk tolerance and want to earn good returns in a secure manner, FDs are always the best options.

On a closing note

Experts strongly recommend the inclusion of fixed deposits in investment portfolios irrespective of the investor type and risk potential. Even though you may invest in mutual funds, small savings schemes and even in direct stock/share purchases, FDs will be the cushion that soften all blows and keep the portfolio balanced. This will be one investment that remains absolutely secure and will give you a much-needed lump sum amount at maturity (if you are not opting for payouts at regular intervals). If you are looking to earn monthly income from your accumulated corpus safely, then FDs can give you pre-fixed payouts at intervals. They are the safest and best investment information channels available for all investors in today’s times.

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