Saving money for a rainy day is more important now that the COVID-19 pandemic has taught us all that lesson. Savings are important, but they should not be your only source of income in the future. For those who have managed to save money, it's time to investigate strategies to increase the value of your savings. Mutual funds, term deposits, the Public Provident Fund, and Direct Equity are among the most popular investing alternatives today. Fixed Deposits, India's most trusted financial product, are an excellent choice for young investors, notwithstanding the trend toward market-linked products like mutual funds. Including a fixed deposit in your investing strategy provides you with the following five advantages:
Returns You Can Count On
A fixed deposit, unlike an investment in the unpredictable stock market, offers guaranteed profits. When you put money into a fixed deposit, you know exactly how much you'll get back when it matures. The set deposit interest rate that was agreed upon, regardless of the varying interest rates and how the economy performs, will yield the same returns.
Risk in the portfolio is reduced
Every asset class in your investment portfolio has a certain job to perform, whether it's gold, equities, fixed-deposit certificates of deposit, or equity. A fixed deposit, on the other hand, ensures that your money is safe in the knowledge that it will earn a predetermined amount of interest each month.
Loans and Credit are readily available
A fixed deposit might come in handy in the event of an unexpected financial crisis. Loans can be taken out against your fixed deposit at any time. Banks normally authorise 70-95% of your total fixed deposit balance, however this varies from institution to institution.
Flexibility
It's impossible to foresee the onset of adversity. When things are tough, a fixed deposit may be a lifesaver since it allows you to take out money before it matures. Even though you may be required to pay a minor charge or penalty, the procedure is pretty straightforward and there is little to no difficulty involved.
The interest rate options available with a fixed deposit include both non-cumulative and cumulative interest. It's a choice between receiving quarterly or monthly interest payments, which you may use to pay your expenses and EMIs, and keeping your savings locked up until the end of the loan term. Compounding interest might help you earn more money.
Benefits for Taxpayers
You are free from paying taxes on the interest or dividends you get from a Fixed Deposit up to Rs. 10,000 in a financial year. A fixed deposit account having a lock-in duration of five years is free from income tax under section 80C of the Indian Income Tax Act, 1961, which provides relief of up to Rs. 1.5 lakhs per annum.
A fixed deposit can be an excellent investment. Also appropriate for short-term financial goals, like as a wedding or the schooling of a kid, that you want to accomplish in the near future.
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