If you are new to investments, your financial advisor must have advised you to maintain a diverse investment portfolio. The question here is what is an investment portfolio, and why should you make it diverse? Your investment portfolio is a grouping of your financial investments and assets.
It includes stocks, bonds, fixed deposits, foreign currencies, investments in real estate, and investments in precious metals as well as cash equivalents that you hold. While investment instruments like stocks and bonds involve a risk factor, investment in fixed deposits reduces the risk.
Importance of a Diverse Investment Portfolio
In order to maintain the value of your overall returns and income, it is necessary to maintain a diverse investment portfolio. If your portfolio contains some high-risk investment schemes like stocks, foreign investments, or assets that are subject to market risk, you should dilute the risk factor with some safe investments. Thus, by diversifying your portfolio, you can enjoy high returns from the risky investments along with the fixed returns from safe investments.
FD Investment for a Perfectly Diverse Portfolio
Investing in Fixed Deposits means you are locking a certain amount for a specific duration to get fixed returns. The fixed amount that you get is the addition to the principle amount that you have invested and the interest you have earned. Generally, the FD interest rate provided by banks is between 6-7%. Therefore, it is a common notion that even though FDs are safe investments, they do not generate higher returns. Although this notion rings true with banks, NBFCs provides FD facility at higher interest rates of up to 8.75%. Thus, if you invest with NBFCS, you can add an asset to your portfolio that is safe as well as highly profitable returns.
Benefits of Fixed Deposit
The benefits of investing in fixed deposits are not limited to just safety and fixed returns. Investing in FDs can provide you the following benefits:
You can select your fixed deposit tenure according to your investment plan. You can invest in FDs for long-term as well as short-term. Depending on your needs, you can set your FD tenure anywhere between 7 days to 10 years.
Fixed deposits have higher liquidity because you can withdraw the amount at any time. Additionally, there are 0.55 to 1% charges applied for pre-mature withdrawal of the fixed deposit amount by banks and NBFCs.
Flexibility on Interest Rate
You can select how you want to earn interest on your deposit. You can either avail cumulative interest rate on your fixed deposit or go for fixed interest returns. You can calculate the potential returns with both options by using FD Calculators available on the website.
Reinvesting the Interest
Once the fixed deposit tenure is complete, you can reinvest the interest earned on a regular basis and ladder your fixed deposits to maximize your investments. By doing so, you can tap into all the advantages of fixed deposits.
Loan against FDs
In the times of urgent cash needs, you can take a loan against your FD holdings instead of liquidating your investment. You can avail a loan up to 75% amount in the fixed deposit account. By doing so, you can satisfy the urgent cash requirement and regain your investment income after repayment of the loan.
Considering all of these advantages, it can be said that investing in FDs will bring stable high returns and diversify your portfolio perfectly.