A Fixed Deposit is one of the viable investment options for all the investors having different perspectives. Read on to know about its multifarious benefits.
A Fixed Deposit is an investment instrument in which an investor contributes capital, as per his/her preference, to a bank or a financial institution. The bank or the financial institution pays interest as per the prevailing rate for the decided tenure. The interest rate is determined on the basis of the base rate determined by RBI, the apex banking authority of India. Let’s take a look at the myriad benefits of a Fixed Deposit amount:
A fixed deposit offers guaranteed return on investment. The returns are as per the prevalent interest rate at the time of opening the account. It remains constant throughout the pre-decided term, remaining unaffected by capital market volatility. This means that you can predict the returns you will enjoy after your FD matures right at the time of investing in it. It certainly offers a relatively higher rate of returns than a savings bank account.
Comparatively higher interest rate
Yes, you read that right! You can not only avail risk-free capital growth, but also higher returns on Fixed Deposit. The rate of interest applicable on Fixed Deposits is higher than that available on savings account.
Safe investment option
The fixed rate of interest ensures that investing in FD is a safe investment option even during inflationary fluctuations. Therefore, there are absolutely no capital market risks that your invested capital will be exposed to.
Zero-hassle investment instrument
With FD, you can rest assured that your money will grow at the expected rate, without you having to consistently track the market performance and shuffle your portfolio to optimize your returns. No wonder, FD is synonymous with being a hassle-free investment instrument.
Magic of compounding
Fixed Deposits grow the invested capital through the magic of compounding when they are chosen as a reinvestment option. The phase ‘compound interest’ implies that you will be eligible for earning interest not only on the principal amount, but also on the interest you earned.
Reliable income source
Fixed Deposits also offers you the flexibility of opting for monthly or quarterly interest payout option, if you wish to treat it as a regular and stable source of income.
Quick and easy account opening process
Do you have a bank savings account? Mostly we all do. It is the easiest thing to open a Fixed Deposit at a bank where you already hold a savings account, not that you have to wait for a long time otherwise. If you don’t have a savings account, you may consider opening one at a bank of your choice and then open a Fixed Deposit. The process is fast and easy not just for opening a Fixed Deposit, the renewal procedure is equally hassle-free.
The amount that has accumulated in your Fixed Deposit can be withdrawn whenever you need it against a small penalty, if any. This assures you of liquidity to tide over any financial crisis or immediate need arising due to health issues, accident, educational fees, marriage, loss in business, etc. In contrast, selling stocks can also help you in liquidizing your funds, but it will be at the cost of a hefty penalty or enduring huge losses. A financial emergency would push you to sell stocks at a lower rate than what they would otherwise fetch because you are in no position to bargain.
Flexible tenure options
Fixed Deposits offer flexible tenure that you can choose as per your financial objectives. The term can be as varied as 1 year or 10 years, or even a tenure as short as 1 month or a week. This enables you to plan your future responsibilities and aspirations well in advance. You can open multiple Fixed Deposits, perhaps one for each of your financial goals.
Encourages saving habit
Fixed deposits require you to keep the amount for a certain period to accumulate the said interest amount. This encourages the saving habit of an individual. He will not be tempted to spend the money and find a way to manage his finances more efficiently. Make the most of tax benefits! Come tax season and a five year tax-saving Fixed Deposit helps you score on tax exemptions too. It makes you eligible for exemptions as per Section 80C of the Income Tax Act, 1961.
A wide range of benefits of Fixed Deposit makes it a worthwhile investment instrument, especially for conservative investors looking for a risk-free investment with guaranteed returns. Invest in one and let your hair down with the confidence that your invested capital will grow and come right back to you when it matures.