India is known as a country of savers. For a long time, risk-averse investors have preferred to put their money in fixed income instruments like fixed deposits that assure guaranteed returns. However, because of falling bank rates and growing awareness about equities being a better option for long-term investing, most new-generation investors invest only in market-linked products like Mutual Funds.
However, while this is a great move, that doesn’t mean Fixed Deposits can’t be or shouldn’t be part of your portfolio.
Fixed Deposits can be an excellent addition to your portfolio, and in this blog, we will tell you about the five advantages of fixed deposits.
Fixed deposits help reduce portfolio risk.
Smart asset allocation is the key to wealth creation. Various asset classes – equity, fixed income instruments, gold, etc.- have different roles in a portfolio. As Mutual Funds give your money the growth potential of equities for the long-term, fixed income products like Fixed Deposits grant stability due to guaranteed returns.
A portfolio with an intelligent diversity across asset classes (including FDs) ensures that the swing in your returns is minimized and you have a stress-free investing experience.
Fixed deposits are ideal for goals that can’t wait.
Investments in fixed deposits guarantee a fixed return at maturity. So, if a financial goal can’t wait and to achieve that, you need a specific amount of money within a particular time frame, fixed deposits are ideal for such investments.
For example, suppose you need Rs 2 lakh for your kid’s school admission two years down the line. Here you know precisely what amount you would need and the exact tenure. When it comes to fixed deposits, you can inquire about the return amount at maturity while depositing the money. Considering the interest rate and term and depositing your money helps you achieve your goal on time.
Encourage saving habit
In fixed deposits, one needs to keep the amount for a certain period and accumulate the said interest amount. Doing so helps develop an individual’s saving habit. The temptation to spend the money is controlled and encourages efficient management of finances.
Fixed Deposits are a great way to meet short-term goals.
Short-term goals refer to goals that need to be achieved within one to three years. The objective here is capital preservation and earning a small amount of return simultaneously. Fixed deposits are ideal for short-term investment goals.
For example, you want to go for a trip next year or gift an expensive gadget to yourself at the end of the year. Fixed deposits are ideal for such goals. The cost of the journey or the gadget has already been estimated, and accordingly, you can invest by looking at the interest rate.
Fixed Deposits provide surety of returns on maturity.
You are already aware of the money you will receive once your FD matures. Regardless of economic fluctuations or how interest rates move, you will get the returns as agreed upon at booking. This helps you plan your spending well as there are no surprises about the money that will come in and when.
Conclusion
Fixed Deposits are a wise investment option if guaranteed returns are what you are looking for without putting your money at risk. Moreover, you can use your FD as collateral if you need a loan from your bank. Hopefully, you now have more clarity of what a fixed deposit is and how it works, and now you can avail yourself of such advantages offered by MAKS Finserv.