The unprecedented COVID-19 pandemic has brought the world to its knees. Businesses and investors have had to endure losses. However, 2021 is bringing a new hope with it, due to which businesses and banking institutions are gradually returning to normalcy.
It is the right time to look into our finances and savings and draft a plan to diversify our investment portfolio. Finding the right investment instrument based on our needs is the most challenging part of financial planning. Although we tailor investments based on our financial goal, a Fixed Deposit is an essential financial instrument for every portfolio.
FD – Fixed Deposits
Fixed deposit is one of the most popular investment options among risk-conscious investors. Banks and non-financial banking companies provide FD accounts in which a certain fixed amount is invested for an agreed period. The investors, in return, receive the maximum interest rate of FD. The reason it still stands as one of the best financial instruments is the safety and assurance of return on investment.
Reasons to include fixed deposits in an investment portfolio
The growing awareness about equities as a long-term investment and new investors opting for mutual funds is over shading the benefits of fixed deposits. Here are some of the reasons to keep fixed deposits as part of an investment portfolio.
- Reduce portfolio risk
Asset allocation plays an important role in creating wealth, and each asset, whether equity, fixed income instruments, or gold, has different roles in a portfolio. So, a mutual fund may bring long-term equity growth, but fixed deposits offer stability. There is a maximum return on FD, and the returns are guaranteed.
An investment portfolio with fixed income instruments like fixed deposits ensures minimum swing in your returns, and also, your investing experience is a stress-free one.
- Fulfills immediate financial goal
There are times when a financial goal can’t wait for too long. You need a certain amount of money within a specific time frame to achieve your goal. Investment in an FD account is ideal in such scenarios as it ensures a fixed return at maturity.
When you know the exact funds you need within a particular time, you can decide on a favourable interest rate with investment tenure while opening an FD account.
- Meeting short-term goals
A fixed deposit investment helps to preserve capital for one to three years while earning an extra amount at the same time. When there is a financial need in near future such as within two years, you can invest in fixed deposits and achieve your short-term goals.
- Higher interest rates
Due to the recent market development, the interest rates are at all-time favorites. Besides that, fixed deposits primarily aim at getting you more returns out of your investment. You can choose from two available options, cumulative and non-cumulative fixed deposits. Anyhow, you can avail yourself of the maximum interest rate on FD, which is guaranteed.
- Risk-free investment
Most investment instruments are volatile and subject to changes due to economic scenarios. However, it is not the case with fixed deposits as the investment is always safe and secure. The returns earned at maturity do not depend on the company’s profit, making it a risk-free investment for you.
In short
Fixed deposits can be an essential addition to your investment portfolio. However, you must bear in mind that it favors short-term financial goals.
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