There are different types of investment avenues available in India. Some offer market-linked returns with equity-oriented investments, while others offer assured returns immune from volatility.
Ramesh was considering investing his savings in an avenue but was confused about which one to choose. While equity offered him the potential of attractive returns, he was hesitant about the volatility risks involved with it. Similarly, with the available fixed-income avenues, Ramesh was unsure of the long-term investment horizon associated with many options.
As Ramesh was looking for a solution, his friend, Suresh, advised him to opt for a fixed deposit plan. Suresh also outlined the aspects and benefits of the deposit so that all of Ramesh’s investment-related problems can be tackled. Let’s understand what Suresh detailed.
Key Highlights
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What is a Fixed Deposit Plan?
A fixed deposit plan is an investment avenue wherein you deposit your savings in a lump sum for a specified period of time. The interest rate is determined depending on the tenure chosen and other factors. The interest rate remains fixed over the deposit tenure, guaranteeing assured returns.
Fixed Deposits: One Solution to Five Different Financial Problems
Suresh also educated Ramesh about how fixed deposits can solve the different problems that other investment avenues have.
Problem 1: Volatility Risk
Volatility risk is the risk of falling or negative returns when the markets turn volatile. For instance, if you invest in equity and the market falls, you might incur negative returns. Moreover, you can also lose out on the capital invested if the value of the equity investment falls.
Solution: Fixed Deposits Do Not Have Volatility Risks
When it comes to fixed deposits, volatility risks are nil. Fixed deposits do not offer market-linked returns. The interest rate is fixed, and you get guaranteed returns even if the markets turn volatile. Moreover, your deposited amount also remains safe if you invest in a plan with a high credit rating.
For instance, Shriram Finance offers fixed deposit plans with high credit ratings. They are rated [ICRA]AA+ (Stable)" by ICRA and "IND AA+/Stable by India Ratings and Research. By investing in Shriram Finance you can not only earn attractive and guaranteed returns, but you can also rest assured that your investment is secure.
Problem 2: Flexibility in Investments
Ramesh was looking for an investment avenue that gave him the choice to choose his investment tenure and amount. He wanted flexibility to plan his investments based on his financial needs.
Solution: Fixed Deposits Offer Flexibility
With a fixed deposit plan, you can choose how much you want to invest and for how long. This helps you choose a suitable amount and tenure depending on your needs. For instance, if you want to save up to buy a car the next year, you can choose a 6 to 18-month short tenure. On the other hand, if you create a corpus for your child’s higher education after a few years, you can choose a long-term deposit tenure going up to 60 months.
Problem 3: Goal-Based Savings
Investors look for avenues that would help them save for their financial goals. Earmarking an investment for a particular goal helps in getting the funds when you need them to fulfil the said goal.
Solution: Fixed Deposits Come in Two Variants to Match Your Goals
Two types of fixed deposit plans are available to help you plan and save per your financial goals. A cumulative fixed deposit plan would be suitable if you want a lump sum corpus for making a down payment on a home or a car. The plan reinvests the interest earned over the deposit tenure, giving a lump sum corpus on maturity.
On the other hand, if you want to receive regular income to fund your lifestyle expenses after retirement or to supplement your monthly income, you can choose non-cumulative fixed deposit plans. Under these plans, the interest income is paid during the deposit tenure. You can choose the payout frequency and receive regular income. On maturity, the deposited amount is paid back as the maturity benefit.
Problem 4: Liquidity
Liquidity means converting your investment to cash when you need funds for any pressing financial need. Under many investment avenues, liquidity is a concern since your investment is locked in for a specified period, and you cannot convert it into cash at short notice.
Solution: Fixed Deposits Offer Liquidity
The problem of liquidity can be addressed with a fixed deposit plan. These plans offer a premature withdrawal facility. Under this facility, you can withdraw your deposits before the tenure ends and get instant funds for your financial needs. Premature withdrawals incur a nominal penalty though, which you should consider when opting for the facility.
Another way to raise funds with a fixed deposit plan is to avail a loan against your fixed deposit. Loans against fixed deposits helps in avoiding premature withdrawal of funds and the penalty that comes with premature withdrawal. You can get a loan by pledging your deposit as collateral and meeting your financial needs. Repay the loan, and your deposit becomes yours.
Check the rules for premature withdrawals if you want to liquidate your deposits before the chosen tenure.
Problem 5: Affordability
With some investment avenues, affordability becomes problematic since they require considerable investment amounts. For instance, if you want to buy property or invest in gold, you must spend considerable money
Solution: Fixed Deposits Are Affordable
Fixed deposit investments are very affordable. The minimum deposit amount is low, so small investors can easily invest within their budgets. For instance, Shriram Finance Fixed Deposits start from as low as ₹5000.
Moreover, no maximum investment limit allows big investors to set aside a considerable corpus.
The Bottom Line
Besides offering the aforementioned benefits and solutions, fixed deposits are also easy to invest in. You can invest online or offline and open an account immediately. Senior citizens also enjoy a higher rate of return, making fixed deposits a popular investment choice among them.
So, fixed deposits can be the right answer if you are looking for a one-stop investment solution. To choose a lucrative plan, opt for Shriram Finance Fixed Deposits. Typically, many financial institutions allow you to start an FD with a minimum deposit starting as low as ₹1,000. Investors can enjoy interest rates typically ranging from 5% to 9% per annum, depending on the financial institution and tenure. FDs offer flexible terms, allowing investors to choose tenures from 7 days to 10 years, making it easier to align investments with financial goals. Additionally, many banks provide higher interest rates for senior citizens and women depositors, enhancing the appeal of fixed deposits as a safe investment option.
