Why the humble FD is the best choice now
Investments are always subject to market risks. That is why, investors have so many questions before investing in any kind of fund. On the other hand, this risk factor has placed fixed deposits among the most favourable investment tools among investors. But the current market scenario, which offers low-interest rates on bank deposits and other small savings schemes, makes the investors search for higher rates. As a result, you might think to buy gilts or gilts fund, bank AT1 bonds, Bharat Bond ETFs or something similar to this, where you can hope some higher interest rate. But before choosing those funds, you must go through the following article, where you can find why the humble FD is still the best investment option for you.
Gilts may not be a suitable option
Gilts, the government debt securities, may not give you a satisfying result if you go for a simple buy-and-hold strategy. The fact that a gilt fund can give you a great return in the long term, is true. But you should know that you may get negative one-year returns too from gilt funds. It can often be volatile and result in capital loss if the rate of interest suddenly goes up. On the other hand, your steady FD interest rate would give you an assured return even over a short period.
Bharat Bond ETFs are volatile in nature
If you compare Bharat Bond ETFs, the quality papers of different PSUs and their yields, with Gilts, you can see that Bharat Bond ETFs’ performances are better. But the volatile nature of the bonds may give you a negative result. Again, in comparison with fixed deposits, there is more chance of getting a higher long-term return. That’s why you should simply choose to apply fixed deposit online or offline and eliminate the risk factor.
Bank AT-1 Bonds come with market risks
Before investing in AT-1 bonds of banks, you must know about the market risks associated with it. First of all, the bonds may not get matured in 5 to 10 years with the given condition that the bank can skip your payable interest if needed. Under some situation, they can even write down your investment and move on. Thus, it can cause you a significant capital loss. Hence, the AT-1 bonds can never be a substitute for FD.
Some Advantages of Fixed Deposits
Below given are some of the advantages of fixed deposits, which may help you make decisions regarding your investments.
Guaranteed returns
Fixed Deposits are not tentative to market risks. So, it is the safest investment option present in the market, offering you a guaranteed return on your principal. Your FD interest rate will remain the same throughout the tenure.
Deposit insurance
If you invest in fixed deposits, you become automatically eligible for the deposit insurance of Rs. 5 lakh assured by DICGC (Deposit Insurance and Credit Guarantee Corporation). It states that if the bank goes bankrupt, you will get a compensation of Rs. 5 lakh irrespective of the amount of deposit. Even if your deposited amount is less than the insurance cover, you will receive the full coverage.
Tax-saving options
Almost all the banks will offer you different tax-saving FD options, which may reduce your payable tax amount. Though these schemes come up with a minimum of 5 years lock-in period, still, it can be the best option to save your hard-earned money.
Flexibility
Technological advancement makes the fixed deposit investment more flexible, as you can apply fixed deposit online and see the current status through internet banking. You may find multiple options for interest payout such as monthly, quarterly, half-yearly or yearly.
Loan against FD
If you plan to take a loan, you should take the loan against you FD as it offers you a great advantage of lower interest rates than unsecured loans. FDs are hence, more cost-effective. Only a small percentage of interest will be charged over the applicable fixed deposit rate.
Therefore, you can see how the fixed deposit is still the best investment option for an individual. Besides being the safest investment plan, it is very simple to understand. You can easily calculate your interests and total capital gain through simple mathematical formulae or FD calculators which are easily available online.
