Monitor your Fixed Deposits for better returns


Monitor your Fixed Deposits for better returns

The very first characteristic of a good investor is choosing a right mix of instruments which provides not only safety but also returns. In a rising or high interest rate environment, one such investment instrument is the Fixed Deposit, or Term Deposit, scheme. Fixed deposits have several advantages over other investments tools and if they are monitored properly they can reap many benefits.

A Fixed Deposit (FD) provides an investor a predetermined rate of interest (ROI) on the lump sum money which is invested for a predetermined interval of time. The time interval can range from a few weeks to several years. An FD is provided by both banks as well as companies.

Advantage of monitoring your fixed deposit

  • An FD is regarded as a safe investment as it is held with a bank which is regulated by the Reserve Bank of India. On the contrary, privately held FDs may not be a safe option. Nevertheless, FDs are still a safer medium of investing money when compared to other instruments as it provides fixed returns. Let us take a look at the advantages of an FD.

  • Investors are paid regular interest which is pre-determined.

  • Payments received in the form of interest are assured and fixed.

  • Interest payment does not vary due to market fluctuations and volatility. However, banks would charge different interest rates on new FDs depending on RBI rate action.

  • If you are looking for a higher rate of interest, it is advisable to lock your funds in the FD for a longer duration. The interest rate varies according to the duration of the FD. Longer the duration, higher is the interest rate and vice versa.

Demerits

  • An FD is not a very liquid form of investment. There exists a lock-in period and a penalty is charged in case of premature withdrawal, i.e., if the account is broken before the maturity of the FD. However, some banks do not even charge a premature withdrawal penalty anymore.

  • Interest amount is usually paid on a quarterly basis. Some banks provide the option of paying the interest every quarter or as a lump sum with the principal amount at the end of the tenure.

  • If the RBI has not taken any interest rate action during a high inflation environment, bank FDs do not take into account the rate of inflation while offering their interest rates.

  • FDs also do not aim at providing high returns in case of a booming economy as in the case of equity investments.



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