Fixed deposits have been a commonly used fixed-return investment option since years. Investors prefer them for their predictable interest structure and defined tenure. When you open a fixed deposit, the interest rate is fixed at the time of booking for the chosen tenure, which provides clarity on the maturity amount.

While fixed deposits are not affected by fluctuations, investors should review applicable terms, interest rates*, and tenure options before investing. Let’s look at some factors that may help you structure your fixed deposit investments more efficiently.

Choose a Fixed Deposit from a Reputable Financial Institution

Now, you may hear the words, 'Corporate Fixed Deposit', for the first time - so, first, let's explain what a corporate FD means. A fixed deposit facility can either be offered by banks or NBFCs, and other corporates authorised to make such an issuance. The FDs issued by banks are called bank FDs, and those issued by NBFCs and other corporate houses are called corporate FDs.

Fixed deposits may be offered by banks and NBFCs as per regulatory norms. The interest rates, tenure flexibility, and payout structures may vary depending on the institution and scheme.

Investors should review the applicable interest rate, credit rating, tenure options, and liquidity terms before selecting a deposit scheme.

Check the Financial Institution's Credit Rating

Credit rating agencies such as CRISIL and ICRA assign ratings based on the financial institution’s credit profile at the time of rating. These ratings may assist investors in evaluating creditworthiness.

While reviewing deposit options, investors may consider the rating, financial disclosures, operational track record, and governance practices of the issuing institution.

Investment decisions should be aligned with individual financial goals and risk appetite.

Consider a Cumulative Fixed Deposit for Long-term Goals

In a cumulative fixed deposit, interest is compounded and paid at maturity rather than at regular intervals. This structure allows interest to accumulate over the tenure.

Compounding may increase the maturity value over time, depending on the applicable rate and tenure selected.

Select an Appropriate Tenure

Interest rates on fixed deposits may vary depending on the tenure selected. In some cases, longer tenures may carry different interest rates compared to shorter tenures, as per the institution’s prevailing policy.

Shriram Finance offers fixed deposit schemes with interest rates up to 8.15%* p.a., inclusive of an additional 0.50%* p.a. for senior citizens and 0.05%* p.a. for women depositors, subject to applicable terms. Investors can open and manage their fixed deposit online platform or visit a branch, as per their convenience.

Implement the ladder strategy

The ladder strategy is easy and can be personalised to meet your requirements. To create a ladder means to open different fixed deposit accounts with varying maturity. Let's understand how such a strategy can help.

Say you have Rs. 1,00,000 to invest in FDs. Instead of investing the entire amount in a single fixed deposit, having a particular maturity period, consider having five different FD accounts. You can invest Rs. 20,000 each in FDs maturing in 1, 2, 3, 4 and 5 years. This way, if you have a drastic cash requirement at the end of the 1st year, you can use the money generated from the first fixed deposit. However, if it turns out that there is no significant money needed at the end of the first year, then the maturity amount can be reinvested in another FD. Such a strategy will help you manage the interest income as well.

Shriram Finance provides fixed deposit facilities that meet all the requirements mentioned above. The fixed deposit tenures are flexible, and you can select a duration suitable for you. Shriram Fixed Deposit is rated "CARE AAA;Stable" by CARE Ratings; "Crisil AA+/Watch Positive" by CRISIL Ratings Limited; "[ICRA]AA+ (Stable)" by ICRA & "IND AA+/Stable" by India Ratings and Research.

Conclusion

There are so many institutions providing fixed deposit facilities these days. Therefore, it becomes all the more essential to research appropriately and conduct a thorough background check of the institution.

A fixed deposit is a good blend of steady returns and low risks, making it highly attractive to income earners. Follow the pointers mentioned above while looking for an FD facility.