
You must have seen a lot of people investing their savings in Fixed Deposits (FD) in Banks. But have you ever wondered why so many people invest their amount in FD despite low interest rate. In this article, we will tell you the reason for the same.
Financial experts recommend including Fixed Deposits (FDs) in investment portfolios due to their seven key features that make them a preferred choice for many investors.
Assured Returns and Loan Collateral
For those seeking guaranteed returns without risking their money, a Fixed Deposit is an excellent option. Moreover, it can be used as collateral for a bank loan. To apply for an FD, thorough research and gathering essential data about different FD instruments are essential.
Advantages of Fixed Deposits
Here are ten advantages that make Fixed Deposits the preferred financial tool for individuals with a limited risk appetite:
- Flexible Initial Investment: Investors can start with as little as Rs 1000, with no maximum limit, making it accessible for varying financial capacities.
- Varied Investment Durations: Investors have the freedom to choose durations from 7 days to 10 years, with the option to renew.
- Loan Against FD: Investors can secure a loan without prematurely withdrawing the FD, with banks offering 90-95% of the FD amount at a slightly higher interest rate.
- Stability Amid Market Fluctuations: FD shields investors from market fluctuations, as the interest rate remains constant throughout the tenure.
- Tax Benefits: Investing for 5 years or more qualifies for tax exemption under Section 80C, but for shorter tenures, taxes apply. Accrued interest exceeding Rs 40,000 in a year is subject to taxation.
- Predictable Growth: Investors know exactly how much the money will grow in the chosen timeframe.
- Demographic Appeal: FD appeals to a wide demographic, offering security and optimal returns. The DICGC provides insurance coverage up to Rs 5 lakh, ensuring safety even in the event of bank failure.
- Low Initial Investment: One can invest as low as Rs 500.
- Senior Citizen Benefits: Commercial banks typically offer about 50 basis points higher returns to senior citizen customers.
- Liquidity and Easy Liquidation: FDs can be easily liquidated if the investor needs funds.
- Higher Interest Rates: Fixed Deposits typically offer higher interest rates compared to regular savings accounts.