As a young investor, it is always beneficial to start investing your money from a young age. This enables you to have a longer investment horizon and earn good returns. As a beginner in the investment area, you can choose from various options, including fixed deposits, stock market, mutual funds, and more.
Compared to other forms of investment that can be volatile or depend on market conditions, a fixed deposit (or FD) is a reliable investment option that gives consistent returns on your invested amount.
Why do many beginners consider fixed deposits while starting their investment journey? Let us look at some of the commonly cited advantages.
Advantages of a Fixed Deposit for Beginners
As an investment for beginners, here are some advantages of a fixed deposit account:
Encourages you to save your money
An FD is easy to open in any bank or financial institution, thus encouraging you to save more from your income early in life.
If you do not prematurely break the fixed deposit and withdraw the money, you can earn consistent returns right from the start of the deposit.
For beginners who are new to investments, fixed deposits encourage the habit of savings. Remember that successful investors have always started through smaller investments like FDs. Plus, FDs are easier to understand and can be opened through any online channel or by visiting any branch.
Assured returns on your invested capital
Unlike market-linked instruments, fixed deposits offer returns that are determined at the time of booking for the chosen tenure. That is, you know exactly what the FD maturity amount – or the returns at the end of the FD tenure. Hence, you can plan how much money to invest and for how long at what interest rate. This is useful when you want to take care of any future expenditure like higher studies or home purchases.
If you are averse to any form of capital risks, then fixed deposits are a suitable investment option. As interest rates in FDs are fixed, you do not have to worry about fluctuating returns, as in stock or gold investments that are dependent on external conditions.
Useful in a cash crunch
Can you start an FD account as an emergency fund? Absolutely yes. For example, if you expect a major expense after 6 months or 1 year, you can start a short-term emergency fund using FDs to cover those expenses.
Additionally, fixed deposits are also useful when you are facing a cash or liability crunch. In these circumstances, you can break into your existing FD and withdraw the money. FD withdrawals before maturity do attract penalties – plus the loss of interest that you could have earned.
If you do not wish to break into your FD, another option is to take a loan against your fixed deposit to cover unforeseen expenses.
Offers flexibility in both invested amount and tenure
A fixed deposit offers flexibility in both the lump sum amount you want to invest and the period (or tenure) for which you want to invest. For example, you can start an FD by investing just ₹5000.
Fixed deposits can help you in fulfilling your financial goals, like buying a vehicle or getting married.
The maturity value of an FD depends on factors such as the interest rate and the tenure selected. Investors sometimes use the Rule of 72 as a simple method to estimate how long it may take for an investment to double. For instance, if an investment earns an interest rate of 8% per annum, it may take approximately 9 years (72 ÷ 8) to double, assuming the rate remains constant.
Maintaining cash flow
Can fixed deposits ensure a regular cash flow for the investors? Yes, this is possible through the non-cumulative FD. How does this work? Regular (or cumulative) FDs accrue the earned interest to the existing FD account at regular intervals (for example, 1 year). Hence, investors have access to their returns (deposit plus accrued interest) only at maturity.
On the other hand, non-cumulative FDs pay out the accrued interest regularly to the depositors. Depending on the institution, you can be paid the accrued interest yearly, every 6 months, or even monthly. While the overall return from non-cumulative FDs is lower, they can help you in maintaining cash flow at regular intervals.
Why opt for the Shriram Finance Fixed Deposit?
Here are some reasons why you must go for a fixed deposit account with Shriram Finance:
1. Shriram Finance has been operating in the Indian financial services sector for a long time and serves lots of customers across the country.
2. It is rated “Crisil AA+/Watch Positive” by Crisil Ratings Limited, "[ICRA]AA+ (Stable)" by ICRA and "IND AA+/Stable" by India Ratings and Research.
3. Provides additional interest benefit of 0.50%* p.a. for senior citizens and 0.05%* p.a. for women depositors.
4. Flexible deposit tenure ranging from 12 to a maximum of 60 months.
5. Offers both cumulative and non-cumulative FDs. With cumulative FDs, your accrued interest is compounded every month, while with non-cumulative FDs, you can earn interest on a monthly, quarterly, half-yearly, and yearly basis.
6. The convenience of opening an offline (or walk-in) or online fixed deposit for both cumulative and non-cumulative deposits.
7. Easy to start an online fixed deposit with your details, investment scheme, and making your deposit payment through an online bank transfer.
Conclusion
Fixed deposits are often considered by individuals who prefer an investment option with defined tenure and fixed returns. They may support financial planning goals and offer flexibility in terms of tenure and payout options, depending on the product structure.
Shriram Finance offers fixed deposits at attractive interest rates and a range of other benefits. Get in touch with us through our toll-free customer number or book your fixed deposit today with our online form. Start your investment journey today!