Are you looking to kickstart your investment career? If yes, you will need something that doesn't comprise too many technicalities and is easy to comprehend. Fixed deposits are often considered a simple investment option for beginners due to their straightforward structure and predictable returns.
Parking your funds entirely in a regular bank account may not support long-term financial growth. It would be best if you instead look for instruments capable of reducing your risk element while still earning returns. Fixed deposits are often considered suitable for individuals new to investing.
What is a Fixed Deposit (FD)?
A fixed deposit is an investment instrument with a fixed tenure and a predetermined interest rate.
Depending on the type of fixed deposit you choose, interest may be paid periodically or at maturity. Even though most people prefer it long-term, you can get a term as short as a year and as long as 60 months. Tenure options generally vary based on the financial institution’s policy.
You have to notify your financial institution on maturity if you want to reinvest the FD.
Types Of Fixed Deposit
Before you choose the fixed deposit, it is important for you to understand the types of fixed deposits.
Cumulative Fixed Deposit
With cumulative fixed deposits, interest is paid at maturity instead of at periodic intervals. The interest earned is compounded during the tenure, and the total amount is paid at maturity.
Tenure options vary as per institutional policy.
Cumulative FD is an ideal investment option for beginners who do not need a regular cash flow. The tenure of such fixed deposits generally ranges between 12 and 60 months. You get the sum of your principal and accumulated benefit on maturity.
Non-Cumulative Fixed Deposit
Non-cumulative fixed deposits provide interest pay-outs at periodic intervals such as monthly, quarterly, half-yearly, or yearly. The principal amount is paid at maturity.
It is an ideal fixed deposit investment for those seeking regular inflow (example – retired individuals) depending on their financial requirements while ensuring the principal amount remains locked-in. Investors can choose a tenure between 12 and 60 months.
Why Is It Considered Ideal for Beginner Investors?
Here are the reasons to choose fixed deposits as an ideal investment for beginners:
Viable entry option
Beginner investors typically prefer investment options that offer stability and predictable returns. As a result, they may be cautious about investing in high-risk, market-linked instruments.
Fixed deposits and other debt-oriented products are often considered by such investors due to their defined tenure and predetermined interest rate, which may reduce exposure to market volatility.
Fixed returns
Since the interest rate is determined at the time of investment, investors are aware of the maturity value, subject to applicable terms.
Simple mechanism
One of the significant benefits of fixed deposit is its straightforward structure. Understanding its mechanism won't require you to be a finance expert. It is simple – you invest your money with a financial institution for a specific tenure, you earn interest, and you get the principal amount back on maturity.
Flexible tenure
Fixed deposits offer multiple tenure options, allowing investors to choose a duration aligned with their financial goals. Interest rates may vary depending on the selected tenure and the financial institution's policy.
Flexible interest payments
The investors of non-cumulative fixed deposits can avail the benefit of flexible interest payment. When you invest your money with the financial institution, they would ask you to choose among monthly, quarterly, half-yearly, or annual interest payments. In such cases, the interest is not compounded until maturity.
It offers better returns than a normal bank account
A fixed deposit investment enables you to earn better returns on your idle funds than simply keeping them in your bank account.
Auto-renewal facility
An auto-renewal facility may be available, allowing the deposit to be renewed at maturity. This depends on the applicable terms and interest rates prevailing at the time of renewal. Please check with the financial institution for the terms and conditions on FD renewals.
It helps in cultivating the habit of savings
One of the most significant issues that a beginner investor faces is developing the habit of savings. They have a defined tenure and also limit withdrawals before maturity, subject to applicable terms.
What are the documents you need to get an FD?
Like everything else associated with fixed deposits, the documentation is relatively straightforward too. You will typically need ID proof, address proof, photographs, and a cancelled cheque to start your FD. The process is seamless and takes a few minutes.
Get your fixed deposit with Shriram Finance today
With a fixed deposit offering a host of benefits, it is an ideal start for newbie investors. It helps you grow your money while educating yourself with multiple options the investment world offers. It also allows you to earn more than what you would by parking your funds in your regular bank account.
Are you considering investing in a fixed deposit? Shriram Finance offers fixed deposits with tenure ranging from 12 to 60 months. Investors can choose a tenure and payout option based on their financial requirements.