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Why invest in fixed deposits?

what-is-fixed-deposit-fd-and-benefits-of-investing-in-fd

A fixed deposit account allows you to deposit your money for a set period of time, thereby earning you a higher rate of interest in return. Fixed deposits also give you a higher rate of interest than a savings bank account. Any investment portfolio should comprise the right mix of safe, moderate and risky investments. While mutual funds and stocks are the preferred contenders for moderate and risky investments, fixed deposits, government bonds etc. are considered safe investments. Fixed deposits have been particularly popular among a large section of investors in India as a safe investment option for a long period. With fixed deposits or FDs as they are popularly known, a person can invest an amount for a fixed duration. The banks give interest rates depending on this loan amount and the tenure of deposit.

Benefits

Bellow given are the important benefits of FDs

Safety The fixed deposits of reputed banks and financial institutions regulated by Reserve Bank of India, the banking regulator in India are very secure and considered as one of the safest investment methods. Regular Income Fixed deposits earn fixed interest rates for their entire term, which is usually compounded quarterly. So, those who want an income on a regular basis can invest into fixed deposits and use the interest rate as their income. This makes a fixed deposit very accepted way of investing money for retirees.

Saves tax With the directives of the income tax department stating that investment in fixed deposits up to a maximum of Rs.100,000 for 5 years are eligible for tax deductions under section 80 C of income tax act, fixed deposits have again become popular. Fixed deposits save tax and give high returns on invested money.

Drawbacks

Bellow given are the important drawbacks of FDs Lower rate of returns
While the money invested in stock markets may give you a return of 20% the fixed deposits will yield only about 10%. So, the money grows slowly in the case of fixed deposits.

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