Explain why & how fixed deposit is better than other investment?

Posted by Nidhi on November 24th, 2020

Fixed deposit schemes are very popular in India. Almost every investor finds fixed deposits suitable for their portfolio for the guarantee that such schemes provide. In fact, when considering fixed-income schemes, investors tend to pick fixed deposits online over other available schemes. Have you ever wondered why? Let’s explore –

What are fixed deposits?

Fixed deposit schemes are guaranteed income schemes wherein you choose to deposit a lump sum amount of money for a specific tenure. You are promised a rate of interest on the amount deposited. When the chosen tenure comes to an end, you get a lump sum amount on maturity which includes the amount deposited and the interest earned thereon.

Why fixed deposit schemes are better than other investments?

Here are some reasons why investors choose fixed deposits online over other investment avenues –

• Guaranteed returns

One of the primary reasons why fixed deposits are preferred is the safety and guarantee of returns promised by these schemes. When you invest, the interest rate is fixed depending on the amount invested, tenure chosen and your age. This rate remains constant over your investment period even when the market rates fluctuate or the market becomes volatile. Thus, with fixed deposits, you can estimate the corpus that you would receive on maturity as the returns are guaranteed.

• Safe in volatile markets

Fixed deposits are particularly favourable when markets are volatile. Compared to market-linked investment avenues which are risky, fixed deposits promise a safe haven for investors as the returns are independent of market volatility. Thus, investors choose to get the best fixed deposit rates through these deposits when the market is fluctuating.

• Ease of availability 

Fixed deposit schemes are offered by banks, post-offices and Non-Banking Financial Companies (NBFCs). You can, therefore, compare the different schemes of fixed deposit online and choose one which offers the best fixed deposit rates. You can invest online or offline making fixed deposits easy to avail.

• Suitable for small investors too

The minimum deposit required to open a fixed deposit account starts as low as Rs.100 and there is no limit on the maximum deposit which you can make. This makes fixed deposit schemes suitable for small investors too who have limited savings at their disposal.

• Tax benefits

If you choose the tax-saving fixed deposit schemes offered by banks and post-offices, you can earn tax benefits on your investments too. 5-year fixed deposit schemes are eligible for tax deduction under Section 80C of the Income Tax Act, 1961 up to Rs.1.5 lakhs. You can, therefore, invest in such deposits and claim tax deductions on your income. Moreover, for senior citizens, the interest earned from their fixed deposit schemes is also allowed as a tax-free income up to Rs.50, 000 under Section 80TTB. These tax benefits further make fixed deposits a popular investment choice.

• Safety of deposits

Bank fixed deposits are secured by the RBI in the sense that if the bank winds up its operations and liquidates, deposits up to Rs.5 lakhs would be protected. You would get your deposits refunded in such cases and so fixed deposits are safe too.

Given these reasons, fixed deposits are a better investment avenue than others. To invest in a scheme which gives the best fixed deposit rates, you can download the ETMONEY App. The ETMONEY App is a mobile application which allows you to invest in fixed deposits through your mobile. You can compare and pick the best FD scheme through ETMONEY App’s platform and open your account in an instant through online KYC verification. So, to add a debt component to your portfolio, invest in fixed deposit schemes and enjoy the benefits which these schemes offer.