Why should Fixed Deposits be a part of your investment portfolio?

The moment you start earning, the first advice you get is to start the investment process. Indians are known for their saving habits, and for good reasons. It helps during emergencies and fulfils different financial goals. Hence, it is better to have an investment plan as the economy keeps growing. There has been a rise in market-link investments like Mutual Funds, of late. The primary reason for this is interest rates.
However, since they are closely related to the market, they are considered risky. Hence, you need to maintain a balanced portfolio for lucrative returns. A Bank Fixed Deposit is a perfect choice for the same. Here is why you should include an FD in the portfolio:
Lower risk levels
A wise way to invest is to have a diverse portfolio. While you can consider low-risk Equity Funds, they are not entirely risk-free. There are still some uncertainties associated with them. This does not bode well with market falters. You can stabilise this risk with an FD. They offer you stable returns without the market forces affecting them. Moreover, you have a Tax-Saving Fixed Deposit that protects your funds for five years and provides tax exemption up to Rs. 1.5 lakh under Section 80C.
Better and guaranteed returns
Your interest rates remain fixed throughout the investment tenure from the moment you start with the deposits. Hence, you receive the principal amount with the applied interest rates as agreed upon maturity. There are problems caused by market fluctuations or lower interest rates. You get a sense of security as a portion of your funds in the investment portfolio remain protected.
Short-term goals
The Bank Fixed Deposit ranges between seven days to 10 years. It offers enough flexibility to achieve your short and mid-term goals. Also, the fixed returns let you plan the deposits by estimating the exact earnings. It also lets you make the best use of your surplus funds. They allow you to secure and use your finances for future emergencies.
Compounding effects
Investing in Term Deposits at a young age is profitable. Under the Cumulative FD, your interest gets compounded and reinvested along with the principal amount up to maturity. It is the ideal investment where you need not time the market. You can deposit the surplus capital and leave it there. It accumulates interest for you, which helps to achieve future goals.
Apply for Loans
Although you can withdraw your deposits, there is a penalty involved. It also lowers the interest portion. Therefore, it is best not to touch the deposited funds. You can instead apply for a Loan against the Bank Fixed Deposit to fund your emergency needs. The credit amount is almost up to 70% of your deposit amount. The interest charged is the same, depending on the competitive standard. These aspects make Term Deposit both an investment and credit option.

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