Fixed Deposits have traditionally been a popular investment option among India's risk-averse middle class. This group of people walks a fine line between two extremes of the risk spectrum: the exceedingly risk-averse and the overly aggressive investors. As a result, Fixed Deposit Accounts are an excellent vehicle for storing extra cash or savings. Why? For starters, they include a safety and security component that is related to both the returns and the principle amount. They are a perfect investment location for someone who values stability above thrills. Of course, Fixed Deposits do not offer rapid liquidity or the potential for bigger profits in a bullish market, but they do fulfill the financial goal of generating interest on idle funds.
Fixed Deposits have been a popular choice among middle-income Indians due to its protection from market fluctuations. People who earn enough to get by and save a little, but are apprehensive about jeopardizing their financial security, make up a large portion of the consumer base.
The Reserve Bank of India (RBI) issued the most recent figures on bank deposit bases at the start of 2019. Fixed Deposits, also known as Term Deposits, have continuously accounted for the majority of bank deposits. Fixed Deposits accounted for 63.5 percent of all deposits in 2008-09. Despite the fact that their percentage has declined to 57.7% according to the most recent data, they still account for the majority of bank deposits. This demonstrates the Indians' preference for Fixed Deposits as an investment option.
Inclusion of Financial Resources:
Most of us would not invest if there were no choices that guaranteed a definite return. We would retain the excess money undisturbed if we had any savings left at the end of the month over and beyond our emergency funds. Fixed Deposit Accounts, on the other hand, give an opportunity to invest in a way that ensures:
We are assured of predictable or predefined profits as well as the security of our principal.
We are able to put our money in a safe place without worrying about the size of the return or market volatility.
Furthermore, when banks provide Fixed Deposits, you have the choice of receiving interest at the time of maturity or on a regular basis. Interest will be compounded quarterly in a cumulative FD in the first scenario. In the latter case, interest will be sent to you on a regular basis so that you can use it toward your everyday costs. In this regard, FDs are an excellent tool for mobilising the economy's idle cash or savings. The crucial term here is mobilisation. Extremely risk-averse or even conservative investors will be prepared to convert money into FDs and pump them into the banking cycle, so contributing to the aim of financial inclusion.
The Force is being driven by Disposable Money:
We are more likely to have surplus cash when disposable income grows. The apparent next step is to seek for places to put these extra funds. In every investment channel, the dual aims of safety and profits should be sought. Fixed Deposits are a great way to get these benefits. Many people get their first taste of investing when they invest in a fixed deposit. Fixed Deposit Accounts appear to be a better option since they do not want to risk their hard-earned and hard-saved money on a market gamble.
In reality, the tax implications of Fixed Deposits contribute to their profitability. For example, the government is introducing a lighter tax bracket this year. Individual taxpayers with yearly incomes of less than Rs 5 lakhs are exempt from paying tax, according to the Budget. This means you'll have more disposable income, which might help you invest more aggressively. Fixed Deposits, as previously stated, would be the initial investment option for the majority of first-time investors.
More money is poured into the banks, their lending capacity increases. As a result, the business sector will borrow more in order to expand and flourish. We all know that a thriving firm equals more employment and money in the economy.
As a result, the availability of Fixed Deposits can be a significant factor in the mobilisation of savings.
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