Why the FD is the ‘safest’ investment option in India

Why the FD is the ‘safest’ investment option in India

One normally cannot use the words ‘safe’ and ‘investment’ in the same sentence, but you can when you’re referring to fixed deposits.

Most novice investors are wary when it comes to parking their money in market-linked investments. The vagaries of the market may result in a windfall or a huge loss. And so, they are on the lookout for safer options that will offer zero risk.

Let it be established at the outset that no investment is entirely devoid of risk. However, an instrument like the fixed deposit offers the safest options amongst all.

* The interest rate remains constant, so returns are pre-decided.

The point of making an investment is that it should offer good returns over the vesting period. However, market-linked investments cannot always guarantee growth. They may perform well in a buoyant economy, but tank spectacularly in a bad one. This is where fixed deposits score over market-linked options. The fixed deposit interest rate remains the same over the entire tenure of the investment. The fixed deposit interest rate is not influenced by market rate fluctuations. Thus, whatever the state of the markets, you can be certain that your investment will fetch you the returns you seek.

You can use a fixed deposit calculator to find out the projected appreciation of the investment. Input the amount of money you wish to invest, and the desired tenure (in terms of months). The fixed deposit interest rate is already entered in the calculation – the calculator now shows you the projected increase in your investment. Barring TDS deducted on interest earning higher than Rs 10,000 in the year, the calculations are more or less what you can expect to get at deposit maturity.

Other benefits of an FD account

  • The account can be opened online with leading NBFCs and banks. However, do use a fixed deposit calculator before you make your decision about opening the account.
  • The fixed deposit is highly liquid. You can withdraw the FD if you require funds urgently, but you will lose the interest earnings on it. You may also borrow a loan against the deposit.
  • It is possible to open multiple FDs with varying tenures. The benefit of doing this is that you get sums of money at different points in time, to fulfil successive milestones. This way, you can maintain a regular stream of income over a period of a few years.
  • The FD is not subject to market uncertainties since the fixed deposit interest rate is constant throughout the deposit’s tenure. So, you can park your funds in the FD and rest assured that your money is not lost.

You can save tax by investing in a tax saver FD for five years. The tax benefit can be availed under Sec 80C of the Income Tax Act.

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