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Why must you invest in Bank FDs for fixed income?

May 24, 2019
In India, traditionally, fixed deposits have been considered as a safe and prudent investment option because of assured returns over a period of time. A bank fixed deposit (FD) has been a tool of garnering returns that has been utilized very commonly in our society and across income segments. A bank FD is largely considered to be an essential part of one's financial portfolio and is a must-have option irrespective of other investment plans that may be.

Although it can safely be said that fixed deposits offer limited returns on investment. Despite the fact that the returns are assured, yet the overall returns that the investor earns are not significant. The reason for this is that fixed deposits are basically low-risk investment instruments where the emphasis is on security of funds and not on the volume of returns. Therefore, one disadvantage of fixed deposits is that being fixed interest instruments, they are not suitable for a high-risk category of investors who may be looking for higher benefits on the amount of money invested.

The biggest advantage of a fixed deposit is the degree of safety that it offers. When you create a fixed deposit, you lock-in your funds in a fixed interest vehicle. This effectively ensures that the main fund is safely deposited for a set period of time and you earn the returns based on the interest offered by the bank. Therefore, the fund-security is ensured from the very outset and since a fixed deposit is a non-market linked instrument, there is no issue that pertains to market-related risks.

A fixed deposit has a credible market value or cash value. This means that in case of any immediate requirement of funds, you can always apply for and receive a loan against a fixed deposit. Moreover, a significant feature is that the investor can always raise a loan up to an amount that calculates to about 90% of the funds invested in the deposit. This feature allows you to cover any emergency requirement of funds, if need be.

The term-period of investment in a fixed deposit is extremely flexible and varies from 6-7 months to about 10 years. This, in effect, means that there is no pre-fixed or mandatory lock-in term period and you can choose the term of investment as per your specific needs. Therefore, even though fixed deposits offer the required safety of funds and guaranteed returns, yet for those who are looking for significant returns over a period of time, a fixed deposit may not be the ideal option. It, however, serves the interests of the low-risk category of investors. Therefore as part of a diverse financial portfolio, having a fixed deposit should be included as per the risk appetite and after due consideration of one's own fiscal goals and choices.

HDFC Life offers various saving and investment plans that offer guaranteed benefits for the complete financial security of your loved ones and for your long-term financial gains.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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