Fixed Deposit or FD has been a staple investment option in India. While growing up, we often saw our fathers talking about banks and their FD rates with neighbours and relatives.
Even now, when there is no shortage of modern investment alternatives, FDs continue to be a popular choice. What makes Fixed Deposits so popular? What are the top reasons to add an FD to investment plans? Take a look-
- Fixed Returns, Fixed Tenure
Unlike many other investment options, FDs are not market-linked. In other words, the returns don’t depend on the market conditions. The interest rate at which you book the FD will be the rate used for calculating your returns.
Just like the returns, the tenure is fixed too. So, if you’re booking an FD for one year, then it will mature exactly after a year from the investment date. Moreover, you can choose your investment tenure, ranging from 7 days to 10 years.
- Flexible Payout Options
Most leading banks in India now allow customers to choose from various payout options. For instance, the total interest income on the investment can be received as a lump-sum amount on maturity.
Alternatively, you can receive monthly, quarterly, or half-yearly payouts if you need regular income from the FD investment.
- Power of Compounding
If you book an FD with the reinvestment option, then the power of compounding will help generate additional returns. So, apart from the interest that you’ll earn from the invested capital, you’ll also earn interest on the interest you’ve already generated from your FD investment.
But for the power of compounding to work its magic, you’ll have to let the interest accumulate over the entire chosen tenure rather than selecting the monthly, quarterly, or half-yearly payout option.
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- Easy Liquidity
FD is also one of the most liquid investment options. While it is recommended that you remain invested for the entire chosen tenure, you do have the option to make premature withdrawals.
For instance, in case of an emergency, you can break your FD and withdraw the entire or partial investment amount. But note that premature FD withdrawals come with a penalty.
- Tax-Saving with FDs
You can also consider investing in tax-saving FDs with a 5-year maturity to save taxes. Under Section 80C of the IT Act, investments in such tax-saving FDs make you eligible for deductions of up to ₹1.5 lakh in a financial year from your taxable income.
Like regular FDs, these tax-saving FDs come with monthly, quarterly, half-yearly, and yearly payout options. But you don’t get the premature withdrawal facility with these FDs.
Add More Stability to Your Investment Plan with Fixed Deposits
The guaranteed returns over a fixed tenure make FDs an excellent addition to investment plans. While other investments such as equity, mutual funds, REITs, gold, etc. are volatile and fluctuate in value, FDs can be used to add more stability to any investment portfolio.
Compare leading banks based on the interest rate, tenure flexibility, and other advantages they offer with their FDs to select one that best matches your requirements.
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