Fixed Deposits: The best choice for first-time investorsby Vanshika Kumari Financial Writer
For those who are taking baby steps into the world of financial planning and investing, it can get quite overwhelming to make the first investment. For those who are just beginning to create a financial portfolio, there is usually a lot of confusion. There are a number of options to choose from but for a first-time investor, it may not be very wise to put money into risk-bearing investments. This is when Fixed Deposits (FDs) come into the picture.
Not only are FDs a risk-free investment but also a lucrative option for beginners. There are many reasons why a first-time investor should choose a term deposit. Let us take a look at some of the most important factors:
Almost nil-risk: One of the most important factors to take into account, especially for a beginner, is to the risk factor involved in an investment. For those who have just started making investments it is not advisable to take much risk. Hence, term deposits are the best option because there is almost no risk involved when compared other investment options.
Deposits are insured: Whether you are putting your money in a private or public bank, funds up to Rs.1 lakh are safe because it is insured. Yes! All banks have to mandatorily provide deposit insurance. This insurance is offered by the Deposit Insurance and Credit Guarantee Corporation (DICGC). The insurance also covers the interest earned along with the principal investment for up to Rs.1 lakh.
Returns are assured: If you opt for a term deposit, be assured that you will gain the said rate of interest for the period you have made the investment. In case of bank time deposits, there are assured returns and this rate of return is not influenced by any type of external factors such as market conditions or stock prices, etc.
Tax benefit: For those who want to gain a tax benefit, there are tax saver FDs that come with a minimum lock-in period of 5 years. These offer tax deduction of up to Rs.1.5 lakh under Section 80C of the Income Tax Act.
Loan/overdraft facility: One of the other great things about time deposits is that if depositors can use it to avail loan or overdraft facilities. So, if you want to apply for a loan, the deposit can be used as a collateral. Apart from this, even car loans can be taken using a term deposit as a collateral.
Collateral for credit card: Applying for a credit card becomes easy for those who have just began working, do not have a credit history or those who do not have a good credit score. The FD is used as a collateral and a credit card is issued in such cases.
Regular interest payment: There are many types of interest payout options that an investor can choose when it comes to time deposits. The different time intervals for interest payment include monthly, quarterly, half-yearly and yearly. This is a great option because it helps the deposit holder earn a regular source of income from his/her own deposit.
Flexibility: As far as term deposits are concerned, fixed deposits offer investors the flexibility to choose a set tenure to put in the money. This allows the customer to make a choice to invest in short, medium or long-term deposits based on convenience.
Highly liquid investment: FDs are one of the most liquid investments you can have because the funds can be withdrawn at any point of time. Though some banks may charge a certain penalty charge, it is a negligible amount and varies from bank to bank.
On the whole, term deposits are a very good investment option, especially for those who are starting out to make investments. When in doubt, go for an FD!
Created on Mar 30th 2018 00:10. Viewed 410 times.