For many investors in India, Fixed Deposits (FDs) have historically been among the most reliable and established investment instruments. For years, risk-averse investors intending to place their money in fixed-income instruments that assure assured returns and security of principal amounts have turned to FDs as their first choice.
Furthermore, with the facility of online FD account openings, it has become easier than ever to invest in it. So, if you are considering investing in an FD, here are four reasons why they must be a part of your investment portfolio.
Four reasons to include an FD in your investment portfolio
Here are four notable reasons to include an FD in your investment portfolio –
Fixed deposits aid in lowering portfolio risk
Asset allocation is essential for building wealth. In a portfolio, various asset classes, like equity, fixed-income securities, gold, etc., play a vital role. Fixed-income investments like FDs offer stability because their returns are guaranteed. The fluctuation in your returns is minimal, and you have a stress-free investment experience with a diversified portfolio across asset types (including FDs).
For urgent needs, fixed deposits are an excellent alternative
Your investment in an FD guarantees a fixed return when it matures. Therefore, fixed deposits are the perfect investment for those with a financial goal that cannot wait and who need to reach it with a specified sum of money in a certain time.
Along with that, a point to appreciate here is the liquidity it offers. In case of any financial exigencies, you can simply break the deposit, pay a small fine and use the money.
Achieve your short-term objectives with fixed deposits
While investing for the short term, it’s crucial that your capital investment amount is protected and that you also get a respectable return. Investments in fixed deposit accounts are ideal if your goals can be completed in one to three years. For instance, you might be planning an expensive vacation or wish to purchase something expensive. For these objectives, fixed deposits are an excellent choice because you already know how much the trip or the purchase made will cost and can make your investment keeping interest rates in mind.
Fixed deposits guarantee returns when they mature
When you invest in a fixed deposit plan, you know how much money you will get at maturity. You will receive the returns agreed upon at the time of investing, regardless of how the economy is doing or how much the interest rate changes. Doing this ensures there aren’t any last-minute financial surprises when the deposit matures. It makes it easier for you to save money for the objectives you have set.
Apart from these four reasons, for many investors, fixed deposits can also be a reliable source of income. Individuals often rely on the regular interest that they earn for different monetary commitments that they have. So, from that perspective, FDs are good to have in an investment portfolio.
Along with that, FDs also aid in reducing tax burden as well. In addition to the standard fixed deposit accounts, certain banks also provide a five-year fixed deposit plan designed with tax saving FD rates. According to Section 80C of the Income Tax Act 1961, you can deduct your investment in a five-year fixed deposit plan from your income tax. By investing in a tax-saving FD, you can receive an income tax deduction of up to Rs. 1.5 lakh annually.
Parting thoughts
Now that you know all the advantages of including FDs in your investment portfolio, it is time to determine how much and how long you must invest in them to reach your financial objectives. The principal amount, tenure, and interest rate are the three variables used to calculate the amount you must consider before investing. The manual calculation of fixed deposits can be time-consuming and tiresome for many investors. Use the accessible FD calculators available to simplify fixed deposit planning. And, with most reputed financial institutions, you can now complete online FD account openings through the website or the app and start your investment journey.