According to the 2019 SEBI survey, 95% of families in India preferred bank FD over any other investment options as part of their financial planning. Fixed Deposit (FD) offers capital protection and income certainty, making it a very popular savings choice, especially among new investors. These features also make FDs an ideal instrument for attaining short-term financial goals, saving emergency funds and parking post-retirement corpuses.
What Makes Fixed Deposit a Safe Option?
Fixed deposits as a savings instrument is very easy to comprehend. This ease of understanding allows even new investors to invest in it with no confusion. FD is a great option for people who wish to save after their retirement, especially due to the assurance of safety it provides. Let us now look at a few features of fixed deposit that makes it one of the safest savings option in India.
- Returns are Unaffected by Market Fluctuations
There are numerous market-linked investment options for an investor such as mutual funds, real estate, gold, etc. However, these options have a factor of uncertainty and volatility as it is linked to the market. On the other hand, fixed deposits are not affected by market fluctuations. FD offers protection and stability, thereby giving the investors a sense of assurance and comfort. This is especially a great option for risk-averse and conservative investors to turn to fixed deposits to grow their savings.
- Assured and Fixed Returns
A lot of investment options often promise high returns however nobody can predict the exact outcome or the returns that it will generate especially in this volatile market. A fixed income on the other hand will specify the exact income and returns it will generate at the time of investing itself. If the central bank raises key rates such as repo rate, other banks and NBFCs in the country also follow suit. This is a great time for the investor to lock in their savings at a higher fixed deposit interest rate as they will continue earning at this increased FD interest rate, even if banks decide to reduce the interest rates on FD later.
- Capital Protection with an Insurance Cover
Bank fixed deposits are covered under the Deposit Insurance Program of Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of RBI. The insurance cover is applicable on cumulative bank deposits, which include savings account,recurring deposits, current account as well as fixed deposits of up to ₹5 Lakhs per bank per depositor, in case of bank default or failure.
There are other benefits to having fixed deposits than just its safety features. Some of these include:
- Loan Against FD
It is possible to get a loan against your FD account. This feature is called an overdraft facility and comes in handy during financial emergencies. A sum of up to 90% of your principal amount and interest accumulated can be taken as a loan.
- Suitable for Everybody
Whether you are new to investing or a seasoned investor who is looking to diversify your investments and capitalise on your savings. Or someone who is nearing retirement and wants a decent monthly payout by investing – fixed deposit has something to offer to everyone.
No two investors have the same investment strategies or financial goals but there is a common intention among them to earn steady returns and secure their finances. Fixed deposit provides a very attractive option for those investors who are looking to build substantial savings over time.
- Flexible Investment
FD offers the maximum flexibility for both short term and long term investors. The investment tenor can be as short as 7 days or as long as 10 years depending on the plan that you opt for. After your deposit matures, you can choose to reinvest it in the same plan or elsewhere if there is another lucrative investment. There is no ceiling to the amount that you can invest in an FD, so you can keep a big chunk of your savings in FD account where it is free from any market risks.
- Financial Inclusion
For a country like India that is primarily focused on FDs as their primary investment platform, FD acts as a good tool to mobilise extra funds or cash and inject the same back into the economy.
- Taxation Benefits
The Indian government encourages financial inclusion and deems the increase in fixed deposit bookings as a positive sign for the development of the overall economy. In tune with the same, under the Section 80C of the Income Tax Act, the amount that is invested in a tax saving fixed deposit is allowed to be deducted from the total income. However, to enjoy this benefit, the minimum lock-in period is 5 years.
A fixed deposit can be used to secure your money and ensures that you have access to emergency funds when you need them. However before investing, it is important to do proper research on the bank or NBFC that offers the FD. Credit rating agencies such as ICRA and CRISIL award safety ratings to different NBFCs, based on their credentials and reputation. FDs by NBFC with ratings of AAA from ICRA and CRISIL are considered as one of the safest to park your money in. To avoid instances of losing your interest payments or principal, it is best to select NBFCs with a strong reputation and high safety ratings, when saving with fixed deposits.