Investing can be a daunting task, especially if you are new to the game. In a world where the stock market can be volatile and unpredictable, fixed deposits offer a welcome respite. With their guaranteed returns and low-risk factor, fixed deposits are an attractive investment option for anyone looking to secure their financial future.
Investing in fixed deposits (FDs) can be a safe and reliable way to grow your money, but there are a few risks to consider before making a decision. In this article, we will delve into the world of fixed deposits and uncover why they are a great choice for anyone looking for a stable and dependable investment option.
Fixed Deposit
FDs are financial instruments offered by banks and other financial institutions that allow investors to deposit a certain amount of money for a fixed period at a predetermined rate of interest. Considered to be a low-risk investment option, FDs offer a fixed return that is typically higher than the interest rate on a savings account.
3 Main Factors to Consider While Investing in Fixed Deposit
While most FDs are easy to liquidate, some may have restrictive terms, making it difficult to access your money. Additionally, there is always some risk of inflation eroding the value of your investment, especially if the return on your fixed deposit is low.
There is also the risk of concentration, or investing all of your savings in a single form of investment, which can be risky if that investment performs poorly. Here are a few important factors you need to know about in a fixed deposit investment.
1. Credit Score
This refers to the risk that the financial institution offering the fixed deposit will default on its obligations, potentially leading to a loss of your investment. To mitigate this risk, it's important to invest in fixed deposits from reputable, financially stable banks and non-banking financial companies (NBFCs) like Shriram Finance Limited.
2. Interest Rate Fluctuation
If interest rates rise after you have invested in a fixed deposit with a lower rate, you may miss out on the opportunity to earn higher returns on your money. This risk can be mitigated by investing in fixed deposits with longer terms, which generally provide a higher interest rate.Shriram Finance offers higher interest rate ranging up to 9.40%* p.a. inclusive of a special interest benefit of 0.50%* p.a. for senior citizens and 0.10%* p.a. for women depositors.
3. Liquidity of Funds
FDs are not very liquid. This means that you may not be able to access your money quickly if you need it. This risk can be mitigated by investing in fixed deposits with shorter terms or by keeping some of your money in a more liquid account, such as a savings account or money market fund.
To ensure that your investment strategy is aligned with your financial goals and risk tolerance, it is essential to give careful consideration to the potential risks. Nonetheless, for numerous investors, the risks may not be significant, and investing in fixed deposits from a reliable institution like Shriram Finance with a stable credit rating can be a secure option.
Also read: Top 10 Factors to Consider When Investing in a Fixed Deposit
Fixed Deposits: The Safest Investment
FDs are generally considered to be a safe and secure way to invest money. They offer a fixed, predetermined return that is typically higher than the interest rate offered on a savings account, and they are backed by the creditworthiness of the financial institution offering the FD. Because of these features, FDs are often viewed as a low-risk investment option for people who are looking to preserve capital and earn a stable, predictable return.
1. Emphasise Interest Rates
When investing in an FD, it is essential to prioritise high interest rates. By choosing an FD with a competitive interest rate, you can ensure that your returns are as high as possible. It's also a good idea to compare interest rates from various banks and financial institutions to find the best option for your needs.
Additionally, it is important to consider the reliability and creditworthiness of the bank or financial institution offering the FD. A high interest rate is not the only factor to consider when selecting an FD, as you should also take into account the overall safety of your investment.
2. Nomination Option
As a part of the process of investing in an FD, you will be asked to designate a nominee, to access the FD and its returns in your absence.
This can minimise the risks involved in this investment, as it ensures that the funds will be claimed by someone you have chosen rather than being subject to legal or administrative processes.
Investment that is profitable for one need not be the same for others. Here are a few best practices to assist you in creating your own investment strategy: What is the Best Investment Strategy?
3. Fixed Deposits that Promote Savings
An FD allows you to earn a guaranteed and predetermined return on your money while also helping you to grow your savings over time. In the event of an emergency or urgent need for funds, you can generally access your FD through premature withdrawal, provided you have met requirements such as giving advance notice or paying a nominal penalty.
4. Not Affected by Market Fluctuations
The market is inherently unpredictable, with fluctuations in profits and losses occurring regularly. If you invest your money in areas other than FDs, the returns you receive may be subject to these fluctuations. In contrast, FDs offer a fixed, predetermined return that is not affected by market conditions.
If you are looking to minimise risk and receive assured returns, an FD from a reputable financial institution like Shriram Finance may be a good choice for you.
Final Thoughts
Although there are some inherent risks in investing in FDs, careful planning and due diligence can help to minimise these risks and maximise the potential returns on your investment. One important step to take is to check the credit ratings of the company where you plan to invest, as this can provide insight into the financial stability and risk profile of the company. Shriram Finance is accredited with [ICRA]AA+ (Stable)” by ICRA and "IND AA+/Stable" by India Ratings and Research, indicating a high degree of safety for FD investors.
Investing in Shriram Fixed Deposit is worth your time and money. Book your FD now and get attractive returns.
FAQs
- What are the risks associated with fixed deposit investments?
Fixed deposit investments are considered to be relatively safe compared to other investment options, such as stocks or mutual funds. However, there are still some risks associated with fixed deposit investments that you should be aware of – Inflation, Interest rate, Liquidity and Opportunity cost.
- Is fixed deposit investment safer than other types of investments in terms of risk?
Fixed deposit investments are generally considered safer than other types of investments in terms of risk, especially when compared to investments in stocks, mutual funds, and other market-linked instruments. This is because fixed deposits offer a fixed rate of return, and your principal amount is usually guaranteed by the financial institution offering the fixed deposit.
- What factors should I consider while deciding to invest in fixed deposits?
When deciding whether to invest in fixed deposits, you should consider your financial goals, risk tolerance, and time horizon. You should also consider the current interest rate environment and the stability of the bank or financial institution where you are considering to invest.
- How can I minimise the risks of investing in fixed deposits?
To minimise the risks of investing in fixed deposits, you can diversify your portfolio by investing in different types of investments, rather than relying solely on fixed deposits. You can also consider investing in fixed deposits with longer maturity periods, as this can help to mitigate the risk of inflation.
- Are fixed deposit investments suitable for all investors?
Fixed deposit investments may not be suitable for all investors, particularly those who are seeking higher potential returns or who have a shorter time horizon. It is important to carefully assess your financial situation and risk tolerance before making any investment decisions.
Key Takeaways
- Fixed deposit investments involve depositing a sum of money with a bank or financial institution for a fixed period at a fixed rate of interest.
- Fixed deposit investments are generally considered to be lower risk compared to other types of investments but they also typically offer lower potential returns.
- There are certain risks associated with fixed deposit investments, including the risk of inflation, the risk of default and the risk of losing access to the money before the maturity date.
- When deciding whether to invest in fixed deposits, you should consider your financial goals, risk tolerance and time horizon and the current interest rate environment and the stability of the bank or financial institution.
- To minimise the risks of investing in fixed deposit, you do your due diligence by researching the stability and reputation of the bank or financial institution in which you are considering to make an investment.
