Top Reasons why FDs are a Must in your Portfolio

One of the most popular financial products that most banks provide to their clients is the fixed deposit or FD. Because it is safer than equity investments, it is a preferred type of investment. And before you invest any money, you already know the returns. If you want to minimize your risk, it is a secure investment. Additionally, it can assist you in achieving your long-term financial goals, such as retirement planning, home ownership, and paying for a child’s education. This article is about the top reasons why FDs are a must in your portfolio.

What is a Fixed Deposit?

A fixed deposit is when you deposit a large quantity of money into your bank account for a set amount of time at a set interest rate. The amount you invested plus compound interest is returned to you at the conclusion of the fixed deposit’s term.

How does a Fixed Deposit Work?

• A fixed deposit is a financial product provided by banks and NBFCs where you can deposit a flat sum and earn more interest than a savings account.
• An FD can last anywhere between seven days and ten years. The interest earned on the deposit depends on how long it has been there once you make it with your bank. Money can be withdrawn from a fixed deposit before it matures; this is its primary requirement. The penalty must also be paid if you withdraw before the loan’s maturity.
• You have the freedom to select the time duration of a fixed deposit. So long as you have enough funds, you can open it.
• However, this results in a lesser interest rate. Some banks also provide a premature withdrawal option.
• The principal sum as well as interest are credited to the account holder’s bank account on the date of maturity by the bank.

Benefits of Fixed Deposits in Your Portfolio

Reduced portfolio risk is achieved with fixed deposits.

Asset allocation is the key to building wealth. Equities, fixed-income securities, gold, etc., are examples of diverse asset classes that each have a different function in a portfolio. Therefore, fixed-income investments like fixed deposits deliver stability because their returns are guaranteed, whereas mutual funds give your money the growth potential of stocks over the long term.

The swing in your returns is maintained to a minimum, and you have a stress-free investment experience, with the correct asset class diversification in your portfolio (including FDs).

For immediate objectives, fixed deposits are an excellent choice.

An agreed-upon return is guaranteed when you invest in fixed deposits. Therefore, fixed deposits are the best type of investment for those who have a financial goal that cannot wait and who need to reach it with a specified sum of money in a certain length of time.

Let’s say, for illustration purposes, that you will want Rs 2 lakh in two years for your child’s school admission. In this case, you are fully aware of your required quantity and tenure. As of right now, when you deposit money into a fixed deposit, you are informed of the return amount upon maturity. In order to deposit your money appropriately, consider the interest rate and term. You can do this to speed up the process of reaching your goal.

Fixed Deposits are a fantastic tool to achieve short-term objectives

Short-term goals are those that must be completed in one to three years. Capital preservation and a small amount of return are the two goals in this situation. Therefore, fixed deposits are a good choice for these financial objectives.

Fixed deposits are a fantastic choice for such ambitions, for example, if you intend to take a trip within the next year or treat yourself to an expensive gadget at the end of the year. You already know how much the trip or the item will cost, so you can decide whether to invest by looking at the interest rate.

The returns on FDs are guaranteed when they mature

When you put money into a fixed deposit, you already know how much money you will get back when the FD matures. You will receive the returns as negotiated at the time of booking, regardless of how the economy performs or how interest rates change. Since you know exactly when and how much money will be coming in, this makes it easier to budget your spending.

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