A fixed deposit is a financial instrument where in you can invest a fixed sum in a financial institute. In return, the financial institute would pay interest for the duration of the deposit. These fixed deposit rates will vary depending on the amount and tenure offered by the financial institute.
This financial instrument has been a popular choice for most investors. Unlike other investment options, they offer several benefits. Here are some of the advantages of investing in this termed deposit:
Returns are assured: Most of the investment options available in the financial market are controlled and driven by the market conditions. This means, the returns obtained by these financial options are irregular and at times, low. However, the investments that you make in the fixed deposits will give an assured return. Depending on the current fixed deposit rates, the returns are normally generally over and above the returns offered by other financial options. Furthermore, the returns are tied by the tenure.
The tenure is tied to the returns. In other words, longer the tenure, the higher will be FD interest rates and consequently, higher the return on interest.
Flexibility in investment: Most investment options in the financial market come with a fixed set of tenures or rates, in accordance with the current market conditions. These options often restrict your investment options. Fixed deposits offer you with the flexibility of investing your funds over a period of time. Most lenders of a variety of different tenures right from 3 months to 10 years. However, these lenders will have their own tenure criteria, so you must be careful to read all the regulations before investing. You should choose the FD rates and schemes which suit your requirements.
Opt for multiple fixed deposits: Unlike other financial options, you may have restrictions when it comes to owning more than one deposit. And even if you own multiple deposits, you cannot change the rates for these deposits. With the case of the fixed deposits, you can easily invest at different rates such as FD interest rates, tenures and principal amount. In this way, you can ladder the investments to get a steady and continuous income.
Risk managing instrument: Most of the financial instruments in the market offer high returns. But very often, they are volatile in nature. Financial options such as mutual funds, gold ETF’s and ULIP’s amongst many others offer high returns but are often tiedto the current market conditions. For most investors, it becomes necessary to invest in debt instruments so as to adjust with the market risks. In this situation, FD’s are the best choice to manage that kind of risk. With this option, youcan even plan short term and long term financial goals for the rest of your life.