How To Optimize Your Fixed Deposit As An Investment Tool

  • Added:
    Apr 01, 2014
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How To Optimize Your Fixed Deposit As An Investment Tool Photo by Aishwarya Mahurkar

When you have an investment portfolio, you can’t be opinionated about investment tools. You should consider the pros and cons of each and make the best use possible. For example, there are several finance professionals who may suggest that fixed deposits are not beneficial. It is true that they have much lesser returns on investment than other investment tools like mutual funds. However, if you are building an investment portfolio, you would need to make some investments in low risk tools too as all high risk investments may not turn out to be profitable. There are other ways in which this product is helpful though.

• Invest for emergencies: Most people cannot anticipate every kind of emergency. For such situations, the safest, most rewarding & ideal investment would be fixed deposits . It offers higher returns than a savings account. While it is much lower than mutual funds and stock market, it has the highest form of liquidity besides a savings account. So, it continues to grow till you need it. If you plan to save and invest for this purpose, you must ensure that:

I. This is the best interest rate possible. Invest the right amount for the right period to earn the highest returns possible.

II. Ensure that the premature penalty is zero or very low since you use this financial tool to protect yourself against emergencies. Premature withdrawal penalties vary with every financial organization.

You must ensure that you opt for the best combination of the above factors for your investment. There are different ways to invest in this product, which are:

• FDs for low-risk investment: If you are a HNI (High Net-worth Individual), you are definitely in a position to take the risk. You have a substantial support system in place to protect you against major financial threats. Most retail investors, though, can’t claim to have this. So the question is can you risk losing it? If your answer is no, then high risk investment tools like the stock market or mutual funds may not be right for you. Fixed deposits, on the other hand, might be the most suitable choice instead. This low-risk low-gain tool is guaranteed to provide assured returns.

• Invest as a gift: While there are a few mutual funds that allow you to invest on a minor’s behalf, a FD is still a much better way to invest. If you find a good fixed deposit scheme  that offers:

I. Best interest rate for the possible long term

II. Reinvestment of the annual returns option

Then you can easily invest in such a Fixed Deposit and nominate the child as a beneficiary to ensure that the said minor can use it for his/her education or wedding expenses.

Author's Profile

An experienced writer on finance topics, the author articulates of investment choices such as ideal investment would be fixed deposits & recurring deposit schemes. She writes about a variety of topics including the benefits of recurring & good fixed deposit scheme and how to make the right investment choice.

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