Learn the benefits of investing in fixed income investments and earn a regular income with the security of your principal amount.
When investing money, you will have an option of betting on fixed income instruments or the ones which offer returns as per the market movements. A portfolio that is focused only on making as much profit as possible without being concerned about the capital invested is likely to go bust due to excessive risk-taking. The best way to protect your investment portfolio is to invest a reasonable portion of your savings in fixed income instruments. This way, even if the high-risk investments do not perform well, you still have fixed-income investments to rely on.
Top reasons why you should not ignore investing in fixed income instruments
Fixed income investments are commonly used to diversify the investment portfolio. They reduce the overall risk of asset allocation, which is weighted heavily in the stock market. Fixed income instruments such as fixed deposit, corporate bonds, government bonds, are comparatively more stable than equity holdings.
Below mentioned are the top reasons why you should not ignore investing in fixed-income investments.
Stability of principal
One primary advantage of investing money in fixed income instruments is the peace of mind that comes from capital preservation and a stable portfolio balance. Fixed income instruments repay the original amount invested, known as the principal amount, along with interest earned during the term of the investment. This happens when the fixed income investments are highly rated, as is the case of government bonds. Similarly, the fixed deposit offered by banks is highly backed by government and deposit agencies that safeguard customers deposits in case the bank goes bankrupt. This eliminates the concern of investors about portfolio fluctuations over time due to market volatility.
Flexibility to choose an investment amount, term and mode of payment
Many fixed-income investments like fixed deposit offer flexible term of the investment. Term for FD can be from 7 days to 10 years, depending on your requirements. Moreover, you can have multiple fixed deposit accounts for same or different tenure. You also have the flexibility to choose the frequency of interest you wish to receive, be it yearly, half-yearly, quarterly, or monthly basis.
Generates a stream of steady income
In addition to the advantage of capital appreciation, fixed-income investment options provide you with a steady stream of income generated regularly. The fixed deposit provides interest payments, creating consistent flow of income for you. The interest rates are determined when the FD is issued, and the financial institutions guarantee these interest payments.
Better interest rates for senior citizens
Certain fixed income securities like fixed deposit offers better interest rates for senior citizens. Fixed deposit is a popular investment vehicle among senior citizens of the country as the interest rates are slightly higher than that for regular investors.
Get guaranteed returns
The return on investment is guaranteed, irrespective of the amount you have invested in a fixed deposit. Fixed income instruments generally earn interest at the prevailing interest rate at the time of investing the money. Market fluctuations are not going to affect the returns on your investment. This is the main reasons why most experienced investors still prefer to invest a good portion of their savings in fixed income instruments like fixed deposit.
Online fixed deposit
A fixed deposit is the most secured investment option in India. It is supported by the government and offers a fixed rate of return on your principal. Not only does it carry minimal risk, but it also gives guaranteed returns. All leading banks in the country offer a fixed deposit facility to customers. After digitization of the banking sector, most of the banking services can be availed online. It becomes easier to open an online fixed deposit account via net banking if you already hold a saving or current account with the bank.
Types of online fixed deposit
There are 3 types of fixed deposit accounts offered by all banks.
Simple fixed deposit: It is a type of fixed deposit where the interest rates are pre-decided by the banks, and the investment term ranges between 7 days to 10 years.
Special fixed deposit: This type of fixed deposits come with special terms and interest rates such as 300, 700, 1000 days.
Tax saving fixed deposit: It is a type of fixed deposits that comes with a lock-in period of five years. These FDs offer tax benefits under Section 80C of the Income Tax Act, 1961.
Top reasons to invest in an online fixed deposit
The advantage to choose from several online fixed deposits: It is quite effortless to apply for a fixed deposit online. You can do this through net banking or can fill out an online FD application form. Many banks offer a facility to open an online fixed deposit account. Moreover, you can compare interest rates offered by different banks and choose the bank that offers the highest interest rates on fixed deposit.
Easy payment options: You can apply for an online fixed deposit account with the help of any digital payment option or i.e. net banking. You also have the option to link your bank account from where the funds are automatically transferred to the online fixed deposit account.
Saves on taxes: Under Section 80C of the Income Tax Act, the amount invested in a fixed deposit is eligible for tax deduction. An FD investment up to a maximum of Rs. 1,50,000 for up to 5 years of the term is eligible for tax deduction.
Safest personal investment: The return on investment may not be as high as market-related investment options, but it is the most reliable investment instrument that also offers fixed income. Banks with high credit ratings provide you with enough security for your investment.
Loan facility: All fixed deposits come with the advantage of a loan facility against the fixed deposit account. Banks offer loans up to 90% of your fixed deposit amount.
Top things to consider before investing in an online fixed deposit
- Invest in fixed deposit for the long term.
- Choose a bank with high credit ratings.
- Look out for other benefits like loan facility against fixed deposit.
- Check the liquidity and pre-mature withdrawal clause of the bank.
When it comes to the safety of your investment, fixed income instruments outshine the variable ones. With the digitization of the banking sector, it has become easier to invest in these instruments online. Investing in fixed income instruments like fixed deposit can prove to be a good income stream throughout the term of the deposit. Although it has low-interest rates as compared to other market-linked investment tools, the security and fixed returns make FD an ideal option that should have a place in your portfolio.
Recommended Read: Are Fixed Deposits a Good Investment?