Investing is a very crucial part of an individual’s income. For this, everyone needs proper financial planning. The diversification of the portfolio helps in mitigating the risk. Not only must these investments help tackle financial emergencies, but they also must be enough to support retirement. Investing also ensures that the savings grow at a rate to beat inflation. Now, since there are many instrument options available, most people tend to go with low-risk and fixed returns instruments.
Types of Investments
- Corporate Fixed Deposits - these are term deposits that are held by companies over a fixed period at fixed rates of interest. These deposits are offered by Financial Institutions as well as Non-Banking Financial Institutions (NBFC).
- Fixed Maturity Plans - these are fixed-term mutual funds schemes where the capital is invested in debt
- Government Bonds - these are debt instruments issued by the Central and State Government of India when they face liquidity issues. The interest on bonds is also called coupons, which can be either fixed or floating and distributed on a semi-annual basis.
One of these options is our good old friend fixed deposits. What makes a fixed deposit scheme different from other instruments?
1. Guaranteed Returns
Even though avenues like mutual funds and stocks offer comparatively higher returns, these are linked to the markets. The returns for these funds are highly affected by market fluctuations and, at times, might result in losses. On the contrary, fixed deposits are not affected by market variables. These carry a low degree of risk to assure guaranteed returns and the safety of capital. Fixed deposits are the best option for risk-averse investors as the capital invested is fully safe and provides interest at a fixed rate with an assured amount at the time of maturity. One can also know the returns easily using the online fixed deposit calculator.
There are two classifications of fixed deposit schemes:
1. Cumulative fixed deposits - this is suitable for the people who are not in immediate need of funds. The cumulative fixed deposits offer a lump sum payment of initial capital and the compounded interest at the time of maturity. These can then be reinvested for the tenure of the investor's choice.
2. Non-cumulative fixed deposits - These are suitable as retirement funds where the interest on the non-cumulative fixed deposits acts as a regular source of income for the individual post-retirement. These interest on the non-cumulative fixed deposits can be paid monthly, quarterly, half-yearly, and yearly at regular intervals.
2. Flexible Timeline
The other options that provide fixed returns with low risk, like PPF, are backed by the government and offer returns at a rate of 7.1% pa with tax benefits. However, the drawback with PPF is that it comes with a lock-in period of 15 years. The withdrawal in PPF is restrictive and can be done only post 7years. On the other hand, fixed deposits enable the depositor to make partial withdrawals. Also, one can opt for a loan against a fixed deposit. The duration of investment in a fixed deposit can be decided based on the financial goals that range from 12 to 60 months with Shriram Capital Union Finance, and hence the fixed deposit interest rate depends on the duration.
3. Higher Interest Rates
The Senior Citizen Savings Scheme offered by the government enables people to obtain a monthly income after the age of 60 years. This scheme provides an interest of 7.4% pa with an investment tenure of 5 years. Contrary to this, a fixed deposit not only offers a choice of tenure but with Shriram Finance fixed deposit yield interest rate, one can get an interest rate of 9.40%* p.a. on non-cumulative deposit, fixed deposit yield interest rate of 9.05% pa on cumulative fixed deposit, and an additional 0.50%* p.a. for senior citizens. And hence, the fixed deposit can act as a stream of regular income for the individual post-retirement.
4. Mitigates Risk
Fixed deposit is a low-risk investment instrument where the safety of funds can be reviewed by the ratings provided by analytical companies such as CRISIL and ICRA. These ratings indicate the security level of the payment of interest and principal. Looking for ratings on the FD is a great way of mitigating the risk. Shriram Finance term deposits come with a "MAA+/ with Stable Outlook" rating by ICRA.
5. Power of Compounding
A person can start early with investing and multiply wealth by the power of compounding. Investing early, even with small amounts, can get high returns with compounding. When a lot of capital with the compounded interest is reinvested into the fixed deposits, a person can earn even higher. The reinvestment can be done for a period ranging from 12 to 60 months. Shriram Capital also provides additional 0.25%* p.a. on all the renewals, where the deposits have reached maturity.
Comparing Other Investments methods to Fixed Deposits
6. Higher Returns
When compared to recurring deposits, where the deposits are made regularly, the interest rate provided by fixed deposits is higher. The recurring deposit in any bank ranges between 5% to 7.25%. The returns on fixed depositsstrong> are higher because the interest is earned on the lump sum. In the case of a recurring deposit, suppose the investment is made for 24 months, the interest on the first instalment is earned for 24 months, for the second is earned for 23 months, and so on it goes.
Conclusion
With all the points stated above, it is quite clear why a fixed deposit is a good choice for everyone, whatever their risk appetite may be. The duration of a fixed deposit can be chosen by the depositor based on their financial goals. It also assures higher and guaranteed returns to the depositor. It is an important investment instrument for people of all ages, be it an early investor or a person nearing retirement. To be extra sure, the depositor can look up the ratings of the investment.
For instance, Shriram Capital comes with a "MAA+/ with Stable Outlook" rating by ICRA and comes with an unchallenged trust of over 45 years in the Indian market. The interest rate provided by Shriram Capital is 9.40%* p.a. with an additional 0.50%* p.a. for senior citizens. It offers flexible tenure options from 12 months to 60 months. Shriram Finance fixed deposit calculator helps you find the returns on the invested amount. Now, all that remains is applying for a fixed deposit. To apply online for a Fixed Period Deposit, you can visit Shriram Finance official website, or you can apply offline too.
