India has always been considered a saver's paradise. For years, risk-averse investors have preferred to invest in fixed income instruments such as fixed deposits, which provide assured returns.
Due to falling bank rates and increasing knowledge that equities are a better long-term investment choice, most new-generation investors prefer to invest exclusively in market-linked products such as mutual funds. Although this is a wise decision, it does not rule out the possibility of including Fixed Deposit in your portfolio. FDs are a fine addition to your portfolio, and we will explain why in this article.
- Lowers portfolio risk
Asset distribution is the secret to accumulating resources. Different asset groups play various roles in a portfolio, such as equity, fixed income securities, gold, etc. While Mutual Funds have the long-term growth potential of equities, fixed income products such as Fixed Deposits provide stability since their returns are guaranteed.
A well-diversified portfolio across asset classes, including FD, ensures that your returns are stable and that you have a stress-free investment experience.
- Fulfils immediate goals
Fixed deposit guarantees a fixed return as they mature. Fixed deposits are perfect for such investments if you have a financial target that cannot wait, and you need a certain sum of money within a specific time to reach it. Let us say you need Rs. 2 lakh to pay for your child's school admission two years down the road. You will know exactly how much money you will need and for how long.
Today, when you deposit money into a fixed deposit, you will get informed of the return balance at maturity. So, you can look at the interest rate and the term and deposit your money accordingly. It will assist you in achieving your objective on time.
- Best to achieve short-term objectives
Short-term targets are those that must get completed within one to three years. The aim is to preserve capital while still earning a small amount of profit. As a result, fixed deposits are a safe option for such investment objectives.
- Returns on maturity are guaranteed
When you invest in FD, you already know how much money you will get when it matures. You will receive the returns as decided at the booking time, regardless of how the economy performs or interest rates change. It makes it easier to budget because there are no uncertainties on when and how much money will arrive.