There are a variety of investment instruments available in the market today. All of them have their own set of benefits and risks. Depending on your risk appetite, the expectation of returns, current financial capacity, and other factors, it is best to choose one accordingly. Fixed deposits are a traditional choice of investment for most people as it offers immense benefits. Our parents usually prefer to invest in FD to other long-term investments for various reasons as discussed below.
- Safety
The primary benefit for choosing FD to any other investment option is an assured and secure return on investment. Unlike other market-linked instruments that are unpredictable in nature and can be easily affected by the existing economic situation, you will surely earn the returns in an FD assured by the bank. Stability and transparency are the two most fundamental motives that encourage parents to invest at least a part of their capital in Fixed Deposits.
- Withdrawal
Parents are aware that Fixed deposits can be created for the duration of their choice. Depending on your financial needs and demands, it is possible to invest them for a period ranging from one week, one month to even 10 years. For instance, if you have a wedding or an important occasion in 3 years, funds can easily be available if you plan to invest an FD for 3 years. In this way, you need not restructure your investment portfolio and easily fulfill your requirements.
- Tax
According to Section 80C of the Income Tax Act, you are entitled to tax deductions amounting up to Rs. 1.5 Lakhs for a fixed deposit that is over 5 years in tenure. Additionally, the interest earned by senior citizens on fixed deposits of up to Rs. 50,000 are exempt from tax as per Section 80C of the Income Tax Act. Hence, investing is FD is definitely a smart choice
- Liquidity
An FD allows for pre-mature withdrawal as and when the need arises. As FD’s are liquid, they can easily be withdrawn by paying a nominal penalty. This flexibility to withdraw funds pre-maturely enables you to have access to your funds at a time of utmost need or financial crisis
- Loan
Life is unpredictable and hence you should always be prepared financially when any crisis knocks. In such instances, it is advisable to take out a loan. A very big advantage of a Fixed Deposit is that it allows you easy accessibility to credit by borrowing up to 70% – 90% of the principal amount and accumulated interest as a loan against your FD. However, it should be noted that only a few banks offer this advantage.
- Interest rate
Fixed Deposits give you an option to choose between cumulative and non-cumulative interest rates. That means you can decide how you want to receive your interest at the end of the tenure. In other words, you have the choice to either opt-out for a quarterly or monthly payment (non-cumulative FD) or you can choose to lock up the FD to get the benefit of compounded interest at the end of the tenure (cumulative FD).
Conclusion
It must be well defined by now that Fixed Deposits are highly flexible and versatile and hence a go-to investment option for most parents in the country.
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