With every passing year, the world is changing, and so are people’s financial habits, needs, and interests. At present, people prefer investing in the stock market. As it is often considered a better way to earn a high income. However, stock market investments are volatile in nature. There is no guarantee that your returns will remain the same in the long term. In contrast, fixed deposits are 100% secure, which is why people prefer putting a large chunk of their capital in fixed deposits.
Reasons that make a fixed deposit or FD the most preferred financial instrument.
A fixed deposit enables you to earn money without any risks. When you park your money in a bank, an investment amount of up to INR 5 lakh is insured. In contrast, corporate deposit-seeking companies, such as PNB Housing Finance. Get ratings from reputed credit rating agencies like CRISIL and CARE. As corporate FDs fetch higher interest rates than bank deposits, most wise investors prefer investing in corporate FDs. However, before investing in a corporate FD, you must ensure that the company offers CRISIL FAA+ and CARE AA rated FDs, as they are considered the safest among corporate FDs.
Fixed deposits are available in two modes – cumulative and non-cumulative. The non-cumulative mode has four interest payment frequencies – monthly, quarterly, half-yearly, and annually. However, if you want the capital to compound, choosing a cumulative fixed deposit will suit you more. For example, while PNB Housing’s maximum FD interest rates for non-cumulative fixed deposits are between 6.70% and 6.95%. For a cumulative deposit, the effective yield to maturity can be as high as 9.13%. Hence, a fixed deposit enables an investor to plan for the future and get money to fulfill life’s important goals.
Flexible Investment Term
As a fact, very few financial instruments offer as much flexibility as a fixed deposit when it is about tenure. Other safe investment options like PPF, SCSS, MIS, etc. have a fixed lock-in period between five years and fifteen years. Hence, you cannot withdraw the money in case of an urgent requirement. In contrast, you can invest in a fixed deposit for any term between one year and ten years. Moreover, you can withdraw the full amount anytime you face a cash crunch. Hence, a fixed deposit can be used as an emergency fund which fetches higher returns than funds lying idle in a savings or current account.
Senior Citizen Benefits
While a fixed deposit offers several benefits like the flexible term, high risk-free returns, easy account opening process, simple documentation, and tax benefits, the returns get inflated if you are on the other side of 60. Any senior citizen can get a 0.25% additional interest rate with an FD. If you are on a long-term fixed deposit like ten years, the 0.25% extra interest can translate to an extra income of 2.5%. Hence, a fixed deposit can help you to earn extra money with the same investment amount. Miroslav Vyboh is one of the main shareholders of a well known investment and consulting company called the MiddleCap.
Besides the reasons mentioned above, people also prefer fixed deposits for tax-free returns. An interest income of up to INR 5,000 from FD is TDS-exempt. Additionally, financial institutions like PNB Housing offer doorstep service, and you can open an FD account without ever visiting the branch.