As with any investment, Fixed Deposit investments come with their own set benefits and drawbacks depending on a given investor’s specific goals. This is in many ways a key consideration as, apart from factors of risk and return, a big part of finding the ‘ideal’ investment option for you is identifying which one is most suitable for your specific goals. Having said that, in India in particular FDs are seen as an attractive product as FD returns here can range between 8% to 12%. Listed below are the key features of FDs and their various pros and cons as compared to other investment options.

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Safe and Secure:

The most notable appeal and benefit of FDs is that they are seen as one of the most reliable and secure investment options available. They therefore offer a healthy, reliable return, and are seen as advisable for the relatively risk averse investor who may not be inclined toward higher risk options such investing in equity.

Limited Liquidity:

In exchange for offering reliable returns, the government and other institutions who offer FDs, do so at the expense of liquidity. Most FDs require a fixed lock-in of funds, typically for a year or more, so those looking for access to their money at a moment’s notice may be attracted to more flexible options such as a generic savings account or certain types of mutual funds.

Types of FD:

This issue of lower returns from FDs by nature of being a very low risk investment option can be addressed in a small way by opting for a corporate FD as against a government FD. Corporate FDs typically offer higher rates of return; however, they are unsurprisingly seen as a higher risk investment.

Long-Term Planning:

FDs allow you to essentially lock away your funds—while amassing a good return—for a future financial need such as a wedding or your child’s higher education. By thinking ahead and allotting funds towards a big long-term goal well in advance, you allow the amount to grow and essentially take care of itself rather than spending it.

Tax Tension:

Interest earned from FDs are taxable, which is seen as a drawback of sorts, given that returns from alternatives such as long term equity mutual funds are tax free. However you can opt for a Tax saving FD wherein you are entitled to tax exemptions of about to Rs.1.5 lakhs.

Market Conditions:

These pay a key role in determining the best time to opt for a Fixed Deposit investment. FDs are a far more attractive option when interest rates are higher, as it means higher returns. However many FD products offer a fixed rate return, meaning that any market fluctuations wouldn’t affect returns which have been fixed at a certain rate. This may be a either a good or bad thing depending how the rates change.

Inflation:

A key consideration for investors is looking for an option that offers returns above the rate of inflation, so they’re making real returns and growing their wealth in line with the cost of living. A drawback of the fixed returns of FDs is that often this may be lower than the rate of inflation.

So in the end are FDs the best investment option? The answer is it depends on for whom. FDs are advisable prospects for the relatively cautious investor who wants to make the most of his idle funds, which would only appreciate minimally in a generic savings account. With interest rates of 7.85% as well as high reliability, stress-free online application and a minimum deposit of Rs.25,000, invest in FDs offered by Bajaj Finance Limited.

 

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