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5 reasons why you need to add FD in your investment-portfolio

5 reasons why you need to add FD in your investment-portfolio

July 8, 2022
5 min read
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5 reasons why you need to add FD in your investment-portfolio
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Fixed deposits (FDs) have always been one of the oldest and safest investment tools for many investors in India. for decades, FDs have been the first choice for risk-averse investors who want to invest their money in fixed income instruments that bring assurance of guaranteed returns as well as security of principal amount. fixed deposits can also serve as a regular income source of investment for many investors.

Most of the banks and NBFCs offer better interest rates on fixed deposits compared to the interest provided on savings accounts or current account balances. though equity products such as mutual funds prove to be a better option for long term investing, fixed deposits still stand as a good addition to your investment portfolio. it is very important for every individual to have a diversified investment portfolio that includes various types of fixed income and variable income investment sources. 

There are various advantages to adding a fixed deposit in your investment portfolio. here's five reasons why you need to add FD in your investment portfolio:

#1: Reduce portfolio risk by adding fixed deposits 

A thoughtful asset allocation is the key to long-term wealth creation. different types of investment avenues –  equity, fixed income instruments, gold, etc. - play different roles in your portfolio. for example, investing in the equity market through mutual funds gives your money the potential to grow over the long term, while putting your money in fixed income products like fixed deposits gives the security and assurance of guaranteed returns. when you have an investment portfolio with the right diversification across different asset classes, you can be assured of minimum volatility in your returns and you can enjoy a stress-free investing experience.

#2: FDs are perfect option for your goals that can not wait

When it comes to investment, fixed deposit is a tool that promises a fixed return at maturity. therefore, fixed deposits are perfect for you in case there is a financial goal that can’t wait. when you need a specific amount of money within a specific time frame, go for fixed deposit investments. for example, let’s suppose that you are planning an international vacation and want to save a specific amount of money for that. you just have to estimate the cost of vacation, the exact tenure to achieve your goal. with fixed deposits, you can find out about the return amount at maturity while depositing the money. hence, compare the interest rate offered by various banks and NBFCs and set the tenure and deposit money accordingly for your dream vacation. 

#3: Meet your short term goals through fixed deposits

When you invest for a short term, it's very important that the capital investment amount is preserved and as well as you earn a decent amount of return at the same time. fixed deposit investments are good for goals that you need to achieve within one to three years. for example, you want to buy an expensive present for yourself or you are planning an expensive vacation. fixed deposits are a good option for such goals as you already know the estimated cost of the trip or the gift, and accordingly, you can make the investment by looking at the rate of interest offered by the banks. most of the banks offer fixed interest rates from 5 to 8 percent per annum. 

#4: Fixed deposits provide assurance of returns on maturity

When you invest in a fixed deposit plan, you already know the amount of money you will receive from the fixed deposit when it matures. no matter whether the economy is up or down or how interest rates fluctuate, you will receive the returns as agreed at the time of booking. this makes sure that there are no last minute surprises about the money that will be received at maturity. it helps you save money for your planned goals in a better way.  

#5. Fixed deposits also help in income tax saving

In addition to the general fixed deposit accounts, there are banks that also offer a five-year fixed deposit scheme that is meant for tax saving. you can claim an income tax deduction by investing money in a five-year fixed deposit scheme under Section 80C of the Income Tax Act, 1961. you can claim a deduction of a maximum of ₹1.5 lakh per annum by investing in a tax-saving FD, however, the interest earned is taxable. also, these types of fixed deposits have a lock-in period of five years.

Ready to invest in a fixed deposit? take the first step

Now that you know all the benefits of adding fixed deposits in your investment portfolio, it's time to calculate how much and how long you need to stay invested in fixed deposits to achieve your financial goals. there are three variables to calculate fixed deposits - principal amount, tenure of fixed deposit, and interest rate. manual calculation of fixed deposits can take hours and can be a tedious process for many investors. to make the fixed deposit planning easier, use the FD calculator provided by CRED and start investing today. 

use the CRED FD calculator now