Finance

FIXED DEPOSITS: Rediscovered!

In today’s age, most everybody is drinking the syrup of investment. As we have career goals, health goals, setting our financial goals holds equal value. Fixed Deposits can act as your personal Peggy pouch. As parent and child, savings + fd serve as the same combination. 

Moreover, with the beating rate of inflation, having some extra money plays a vital role.

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Also, people who are hesitant from investing, risk-averse people, young investors with the first salary can give a shot to a fixed deposit.   

Fixed Deposit Plan offers a lot of benefits. It is safe, secure, and gives reasonable returns. 

Moreover, in the case of an FD, we can get the interest rate based on a monthly, quarterly, half-yearly, or even annual basis. 

Moreover, investors can open as many fd as they wish. There is no upper limit. 

The longest tenure of fd on an average I have seen for five years; in some cases, it may even go for ten years. It entirely depends on the user

Moreover, having a self-analysis and competitor research is considered to be very important. Compare different bank fd rates and choose the fixed deposit investment plan as per your roles and goals.

Also, fd comes in different ranges like corporate fd, fd investment plan for senior citizens, regular fd, tax savings fd, and cumulative fd.

Moreover, making use of an online Fixed Deposit Rate Calculator can be, in turn, helpful. 

It is undoubtedly a universal human desire to generate and accumulate a lot of wealth. A starting point for many people is investing in the capital, which is available in existing asset classes. Nowadays, people are discarding the old ways to live and are incorporating new ways for the same and probably for the right reasons. Though wine is believed to improve with age, this does not hold significance over everything old. However, one can look towards the old with a newer perspective. As it is rightly said, winners don’t do different things; instead, they do it differently. One can apply the same principle to fixed deposits and look upon it in a different light.

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Following are some of the common assumptions that are held against a fixed deposit:

Fixed deposits return much lower than other asset classes

The fixed deposit returns are capped; they are neither less nor more. In the case of other assets, class returns can be less and, at times, more as well. Thus, in fixed deposits, there is certainty regarding the redemption of principal and interest. 

The real returns are even lower for fixed deposit returns when adjusted for inflation

Almost all asset classes are affected by inflation unless the returns are benchmarked to an inflation index. Therefore, inflation-adjusted returns are lower. 

An individual can relook fixed deposits in the following ways:

Fixed deposits can take a role of cushion to take care or support the regular EMI payouts fully.

Fixed deposits can also serve as a function to meet specific life goals such as child marriage, child education, meeting unforeseen emergencies, and buying a house. Fixed deposits can act as a regular feed to other asset classes: debt or equity, which depends upon the relative market cycle so that an individual can buy them at a relatively lower cost. 

How can fixed deposits work effectively for an individual?

Judicious spreading of risk: It is advised to spread one’s fixed deposit investments across a pool of private corporations and banks. When an individual is deciding among the banks, one can look at a combination of private, well run cooperative and nationalized banks. When an individual is deciding about private corporate, he/she can invest in companies that have excellent credit ratings present in stable and progressive industries. 

A mix of multiple tenors: While investing in fixed deposits, one should look at a blend of tenors. This is because if an individual locks up in a fixed deposit for a particular tenor, then he/she foregoes opportunities for other class opportunities and interest rate revisions during that time. There is no such rule whether the tenor should be shorter or longer. It solely depends on the individual’s goals and ability to foresee investing opportunities that are going forward. 

Whether to compound interest or not: It is a general knowledge that if an individual compound his/her interest rates on a fixed deposit, then the effective yield is going to be higher than the not compounded interest rate. But, compounding takes away the opportunity to reinvest the regular interest at higher prices if further opportunities arise. 

Hiring a smart financial planner: If an individual is not passionate about investing, then it is advisable to hire a financial planner. For a minimal fee, an individual could quickly re-energize the investment portfolio. 

Summary:

With the advancement in technology, people are discarding the old methods and are adopting a newer perspective towards life. This fresher perspective can be applied to every aspect of life, and one such aspect is fixed deposits. One can rediscover fixed deposits with a newer outlook. Some common misconceptions surround fixed deposits. It is believed that fixed deposit returns are much lower when compared to the other asset classes. This is not entirely true. The fixed deposit returns are capped, whereas other asset class returns can be more or less. It is also believed that real yields are lower for fixed deposit returns when it is adjusted to inflation. Almost all asset classes are affected by inflation, and inflation-adjusted returns are much lower. Fixed deposit investments can be spread across banks and private corporations. An individual should also look up to a mix of the tenor. Since, if one is locked up into one tenor, he/she misses other class opportunities. An individual can also hire a smart financial planner if he/she does not know about investing. It is also confusing whether to compound interest or not. Compounding interest comes with both pros and cons. Compounding interest rates assure higher effective yield, but it also takes away the opportunity of reinvesting the regular benefit. 

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