Most of us grew up watching our parents invest their surplus money into Fixed Deposits. Today, we are surrounded by many options, like Stock Trading, Mutual Fund Investments, and many others. As a result, these traditional investments now appear to be old school. Since these investments are ideal for conservative investors taking no risk, they assure returns.
A Fixed Deposit can play an important role in building your financial portfolio. It protects against market fluctuations and lets your principal and interest earnings compound over time. Let us lay down the reasons why it has been a trustworthy investment for generations:
- Need for an emergency or rainy day fund
Any strong financial portfolio will make space for a rainy-day fund. Such emergencies could be anything from a major repair to the loss of a job. You should be able to stay financially steady before finding a new company to work with without borrowing money from others for timely events.
If you are a good financial planner, you will know how to create a safe and liquid corpus for emergency funds. Having a Fixed Deposit Account ensures you have a readily available corpus that earns interest.
- Investment avenue to meet short-term goals
Across our lifetimes, we establish a variety of short-term goals, whether it is purchasing a car, saving up for a vacation, or refurbishing our homes. You need a corpus that is liquid enough to align with the timelines of your needs. It should also earn interest while the money sits in the account and remain safe.
- Favourable income tax implications
Most millennials enter the workforce these days. Over time, they pay a tax of 10% or 20%. It is interesting to note their post-tax returns. If you get 5.5% as FD rates for a year, your post-tax returns are higher compared to those with bigger packages. Moreover, you can also invest in Tax-Saving FDs, which offer fixed and definite returns while saving taxes.
- Asset allocation
When you are about to reach your financial goals, you should take lower risks. Fixed Deposits can help rebalance your asset portfolio, especially if you belong to the lower income tax brackets. Try opening one on the Banking app and letting it rebalance your asset portfolio.
- Effective risk management
The funds you invest in FDs are safe from any credit or interest rate risks. This principle is even true if you are already taking risks through other investments and aim to have an element of risk-free return.
Conclusion
The thrill of investing in the market and gaining higher returns is the perfect exercise for a portfolio’s financial health. However, the risks need to be balanced out with safer investments, too. Thus, FDs are not yet outdated as an investment avenue. You might disturb the asset allocation, so opening FDs helps rebalance it.
