Aligning Fixed Deposit Investments with Your Financial Goal

The FDs are one of the most sought-after instruments to save surplus money. This is due to their characteristic of being highly safe. People prefer to invest in FDs over other instruments despite giving low returns on the money invested.

For example, the banks are offering around 7% or less rate of interest on the various tenures while some offer slightly higher.

Fixed Deposit | Image Resource: appreciatewealth.com

Reasons for choosing FDs and which financial goals to achieve

FDs are an ideal choice for those investors who are interested in fixed and regular income. The percentage of your investment portfolio that you should invest in FD should be based on your risk appetite and your liquidity requirements. FDs should be made a part of your portfolio.

FDs are the safest instruments and are classified based on the overall safety of the initial amount invested. The Fixed Deposits issued by banks, PSUs and large private companies carry an AAA rating. This means that there is very little chance of your investment going bad. On the other hand, it also means that your returns will not be high when compared to other investments.

FDs are good for short-term investments typically not above 3 years as they are risk-free. The main idea is to invest and save in a way that there is little or no fluctuation in returns and absolutely no loss of capital. This makes FDs the best option for short-term goals. For example, making a downpayment, college fees and more.

FDs should not be linked or attached to long-term goals. Only short-term goals which are below a year should be attached to FDs as you do not take risks for the short term. 

FDs are a good instrument for Emergency funds. Every household should prepare for emergency funds so that in such situations the money invested does not get disturbed. The emergency funds can be placed in the bank FD and should be available when required.

FDs are useful for senior citizens and risk-averse investors who prefer the safety of the investments above all. Bank FDs are the best option for this type of conservative investment attitude.

Types of fixed deposits

  • In Cumulative FDs, the interest generated on the principal gets added to the FD amount until the time of maturity.
  • In Non-Cumulative FDs, the interest generated on the principal amount is paid out regularly to the depositor.

If you are looking for online trading platforms then you can consider the Appreciate app.

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