5 Big Financial Reasons to Include Small Term Fixed Deposit in Your Investment Planning
5 Big Financial Reasons to Include Small Term Fixed Deposit (FD) In Your Investment Planning
Fixed Deposits allow you to park your surplus funds with a financial institution or bank for a certain amount of your preferred time with an aim to raise a little more fund in the form of interest.
People usually include this process in their Wealth Management to either save money or save tax as the long-term deposits enable you to save taxes under Section 80C of the Income Tax Act, 1961.
However, investors would like to include Fixed Deposits in their Investment Plans for a short term, though it does not include tax benefits. They would include this as one of their investment options to diversify their wealth portfolio as they firmly believe in not putting all our eggs in one basket.
Let's understand here the five reasons as why one must consider including Short-term Fixed Deposit in the Investment Planning.
1. AN INVESTMENT WITH SHORT TERM DECENT RETURNS
Though 'Deposits' in general is a traditional & popular choice for Savings, I would like to consider Fixed Deposits as a form of Investments here, as it is a baby step towards your journey of Investments & Financial Planning.
Fixed Deposits for a short stretch of time can fetch one some decent returns that is very well known to you during the time of booking, so that you can expect fixed returns & plan your other volatile Investments accordingly. Fixed Deposits, when chosen wisely, do have a potential to outperform returns of a Debt Mutual Funds.
Banks that offer best interest rates for short tenors between 6 months & 1 year or 181 days & 365 days as on today (November 30, 2022) are:
Nationalized Bank - State Bank of India: 5.25% - 6.10%
Private Indian Bank - HDFC Bank: 5.25% - 5.50%
International Bank - Citibank: 7.25%
2. SECURED INVESTMENT & FIXED RETURNS
Fixed Deposit is a stable investment that delivers good returns, which makes a fixed deposit better than any other investment option for short-term returns. Besides, a fixed deposit assures fixed returns while opening an account, stays stable throughout the tenure, even during market fluctuations. Unlike market-dependent investment options like a mutual fund, SIP and stock, a fixed deposit is far secured & safe since it is not dependent on market growt & delivers returns as booked.
As per the SEBI survey early this year, 95% of the Indian families prefer investing in bank Fixed Deposits as they are not market-linked instruments, and less than 10% were keen on investing in mutual funds or stocks, considering 'Security' as a major factor.
Booking a fixed deposit will certainly yield you assured returns as promised by financial institution or any bank. International Banks like Citibank are increasing their FD interest rates for short tenors to help investors diversify their investments, & are guaranteed to receive higher returns at very short time. This benefit helps investors to set financial goals as they know the amount of money they will receive at maturity.
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3. LOAN AGAINST FIXED DEPOSIT
A loan against a Fixed Deposit is the best feature that makes a Fixed Deposit better than any other financial probability. You must know that an investor can avail of a loan of up to 90% against their Fixed Deposit. As loans are a lending tool that helps one during financial emergencies, a Fixed Deposit can be utilised to obtain loans according to one's convenience, without breaking the deposit. Few banks also provide this facility to be availed against deposits held by the members of your household.
It is an ideal way to maintain liquidity while optimising the returns of your invested funds. It is swift & a convenient process. Only a little mark up would be charged over the interest that one's Fixed Deposit earns. And, interest is mostly charged on usage only.
4. FLEXIBILITY
Fixed Deposit can be booked as per one's requirement. Investors can choose the tenure and Fixed Deposit amount according to their convenience and financial goals.
One can also choose preferred Fixed Deposit between - cumulative and non-cumulative Fixed Deposit schemes. Investors will be able to withdraw or receive the maturity amount at the end of their investment tenure in a cumulative Fixed Deposit. In a non-cumulative Fixed Deposit, one can receive monthly, quarterly, half-yearly and yearly payouts.
Not just that. Though the tenor of your Fixed Deposit is short, emergencies come uninvited. One can also leverage on Premature Withdrawal during such extremity. No other investment option is better than a Fixed Deposit in terms of liquidation, as you can withdraw/break your Fixed Deposit anytime in between the tenor. However, one must know that there's a penalty for this facility which would differ based on different banks. As premature withdrawal incurs some costs, one can also opt for Loan Against Fixed Deposit for immediate assistance.
5. CONVENIENCE
Booking a Fixed Deposit is exceptionally convenient, uncomplicated, and paperless process. With emerging technologies, banking app & website provides a convenient way to take care of your banking needs. On Bank's website or the mobile smart banking app, one can easily book Fixed Deposit with just few clicks away.
Banking customers are given access to a variety of Fixed Deposit alternatives, including Fixed Deposits, Recurring Deposits, Senior Citizens Deposits & Tax Saver Deposits.
Few other banks also provide specialized Fixed Deposit schemes like Citibank's Muti Deposit, SBI's Multi Option Deposit Scheme (MODS) & Union Bank's Savings Flexi Deposit Scheme (SBNFD) which are also available online for booking.
The premature withdrawal process in Fixed Deposit is also quite simple & effortless & is generally paperless with most of the banks.
TAKEAWAY
Wealth management helps in reducing financial stress and prioritize financial decisions based on a timeframe. To plan for your envisioned financial goals, there are a variety of investment avenues. But if you are looking at earning fixed, secured and steady returns in a short span of time without any markets risk, Fixed Deposits (FD) that are also known as Term Deposits are the best choice.
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