Pros And Cons of Investing in Fixed Deposits

It would not be an overstatement to say that fixed deposits have been one of the most favoured investment options in India. Although it can be conventional,  it has definitely made a place for itself among other options like mutual funds and real estate etc.

Before making any solid investment, it is important to study the pros and cons involved in what you are choosing to invest.

The same thing applies to fixed deposit scheme as well. If you’re looking to invest your savings into a fixed deposit, then take a look at the pros and cons listed below to get a better picture of what you’re actually sinking your money into.

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The Advantages of Fixed Deposits

Take a look at some of the pros of investing in fixed deposit

Safety

Fixed deposits have always remained a safe bet considered to other options. Other investment avenues like mutual funds or real estate can be a bit more high profile, but they can also be more risky when compared to fixed deposits.

Guaranteed Returns

Fixed deposit rates are constant as they are not influenced by the fluctuations of the market. Hence you will have no major surprises when it comes to the question of high interest rate on FD.

Promotes The Habit of Saving

As fixed deposits demand that the amount need to be locked in for certain number of years. Premature withdrawal will invite hefty penalty, in that case you have no choice but to save some money through the maturity period.

Reliability

Financial institutions offering fixed deposit schemes are mostly credible institutions like banks and NBFCs. Especially with a leading NBFC like Bajaj Finserv which has a FAAA rating from a reputed credit-rating agency like CRISIL then you can rest assured about the stability of your investments.

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Disadvantages of Fixed Deposits

Returns

Even though they are safe and reliable, fixed deposits give lot less returns compared to other options like mutual funds and real estate. If you’re someone who can withstand a bit of risk, then you can choose to go for some more volatile options, which may provide better gains, instead of a fixed deposit.

Tax liability

The interest earned on the fixed deposit is taxable if the amount exceeds 10,000 rupees, hence you need to plan the investment scheme in such a way that the amount doesn’t cross that limit under any circumstances. Before you go ahead with any investment in fixed deposit, go online and search for a fixed deposit interest calculator. This will help you find out how much you can gain through a deposit, and see if you need to break it up to avoid being taxed.

Apart from the above option, you can also opt for tax-saver fixed deposits. According to section 80C of the Income tax Act of 1961, if you’re the first holder in a joint account, then you can avail any tax benefits applicable on it.  

Liquidity

As mentioned before, the amount stays locked in with the bank or NBFC for a long period. This controls all chances of withdrawal, especially if you have a sudden financial need. This doesn’t have to be an issue, if you choose the right financial institution. Institutions like Bajaj Finserv has a flexible tenure option, where you select the time period ranging from 12 months to 60 months. This feature will make the fixed deposit scheme a lot more flexible for you, as an investor.

Fixed deposits are indeed one of most convenient options for big investment. Even though there are few disadvantages associated with it, they’re not game-breaking, so that means you don’t have to worry too much about the money you’ve invested.

Tags: fd interest ratesfixed deposit calculatorfixed deposit schemesfixed deposit termsfixed deposits indiahighest term deposits

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