What could be the best investment plan for the upcoming year and why is it important?

The financial year 2018-19 saw greater returns on their fixed deposit investments when compared to other investment instruments like mutual funds, debt funds and equity. The reason for the same can be accredited to its nature of generating steady returns and its non-market linked structure.

All of these key features make investing in a fixed deposit account scheme one of the best investment plans in the market.

To further illustrate its importance, it must be noted that a fixed deposit account is one of the most viable options to build a corpus, especially for the first time investors.

Moreover, being a steady source of regular income, fixed deposits serve as a potent tool to diversify one’s portfolio and maintain a balance between fixed and floating income.

What makes investing in FD effective?

A fixed deposit account is a simple, secured and stable tool of investment. Also, these latest economic trends make FD among the most effective investment plans –

  1. Current record of generating returns on investments

In the financial year of 2018, FDs performed way better than debt funds and equities. As per reports, fixed deposits accrued returns at the rate of 6.25%, whereas, debt funds and equities could generate only 5.5% – 5.9% and 2.7% returns respectively.

  1. Impact of Infrastructure Leasing and Financial Services default

When the big names of Infrastructure Leasing and Financial Services defaulted on borrowings in 2018, it directly hampered several companies’ credit ratings, pushing them downwards from A+ to D.

As its immediate effect, funds like ultra-short-term debt funds and credit-risk funds produced underwhelming average returns.

Fixed Deposits of reputed financial institutions like Bajaj Finance are generally, MAAA and FAAA rated by ICRA and CRISIL respectively. The former indicates highest-credit quality while the latter indicates the highest safety; which makes these deposits a safe and viable option for investments.

  1. Impact of RBI’s latest repo rate cut

At the beginning of 2019, the RBI reduced its lending rates from 6.50% to 6.25%, making borrowing money more affordable. It further enhances the possibility that some lending institutions may reduce the rate of interest they offer on fixed deposits to retain more profits. To ensure that they are not subjected to such a reduction in the rate of interest, intending fixed deposit holders should invest in it immediately.

Besides these economic trends, individuals must also weigh the pros and cons of investing in fixed deposits. It will help them to plan their investments better and will help them make the most of them.

Reasons why you should opt for a fixed deposit account

The following features and benefits serve as the reasons to invest in a fixed deposit account to plan your investments better –

  • A risk-free investment option.

  • Free from market volatility.

  • A fixed source of guaranteed returns.

  • Offers better rate of returns when compared to other similar investment options like Government bonds or Treasury Bills.

  • Offers flexibility to choose a convenient term of the investment.

  • Offers the option to avail a loan against the fixed deposit amount.

  • Flexible withdrawal terms.

  • Tax-saving fixed deposits offer substantial tax exemptions under Section 80C.

  • Offers better rate of returns to senior citizens.

All these pointers make fixed deposits an ideal investment plan for risk-averse investors who want to diversify their portfolio with a steady source of income. Additionally, the feature of earning fixed monthly returns irrespective of the market conditions makes fixed deposits one of the best risk-free investment options for senior citizens.

To build an ideal investment plan, individuals should also take into account factors like their risk-capacity, financial goals and tenor. Any prospective investor should use a fixed deposit calculator to compare the rates of interests provided by different fixed deposit schemes before investing in any of them. Considering such factors and incorporating these practices will prove effective in choosing the most profitable fixed deposit option to invest in. In turn, it will also allow individuals to enhance the effectiveness of their respective investment plans to a great extent.