Fixed Deposit- Fix it and Forget it

Posted by Arwind Sharma on September 29th, 2017

Investing in something is as important as earning money. The world is getting competitive with the continuous increase in our needs. In such a scenario, one has to make sure that their financial conditions are stable and cater to their present as well as future needs. While investing in something has its benefits, it is also associated with certain levels of risk. Also, it is important to make a comparative study between the amount you put and the amount you get in return.

When it comes to investment, there are a number of options available. Bonds, stocks, real estate, funds, bank deposits are some common investment options in India. However, the Fixed Deposit is the most popular form of investment. Let us tackle some questions related to Fixed Deposit Investment:

What is a Fixed Deposit (FD)?

Well, a Fixed Deposit is a type of deposit in which the investor deposits a certain amount of money (as per his wish) for a certain period in a financial company. By opening a fixed deposit account, the investor can earn money from the interest rate offered by the financial institution on the amount deposited by him.

Should Someone take a Loan and then Invest in Fixed Deposit?

Now when it comes to investment, people might consider taking a loan and then invest the amount into something else. When you decide to take a loan for making an investment, a personal loan is the only option you have. However, personal loans are provided only to salaried individuals with a decent credit record and reputation. Here are some points supporting the argument that taking a loan for investing in fixed deposits is not a wise move:

• Interest Rate: Personal loans being unsecured loans charge a much higher interest rate. The interest rates are around 12% onwards and are much higher than other loans. An investment in fixed deposits offers an interest rate of 7-8%, much lower than that being charged on the loan you are planning to take.

• Cost and Benefit Analysis: Be it taking a loan or investing in something, the purpose is to save and benefit from the investment. Investing in fixed deposits by taking the personal loan would not be beneficial as it will not allow you to pay off the loan easily and you will be stuck with paying EMIs. Hence, in the end, you will be paying more and getting much less in return, which is not why you took a loan for.

Invest in FD:

It is true that taking a loan to invest in fixed deposits is not beneficial. However, a fixed deposit continues to be amongst the best investment schemes in India. You can earn money, accumulate a certain amount and then invest in FD. Here is what Fixed Deposit Investment can do for you:

• Guaranteed Returns: When you make an investment through a fixed deposit account, financial companies assure you returns. The amount, however, depends on the interest rates offered and the tenor of the investment.

• Interest Rates: Fixed Deposits are associated with much higher interest rates on FD than a savings account. A number of NBFCs provide attractive interest rates and schemes on Fixed Deposit Investment.

• Loans against Fixed Deposits: One of the most amazing features of fixed deposit investment is the loan an investor can take against the amount deposited. It may happen that you may need some money urgently when you don’t have sufficient cash in hand as you have invested it all in your Fixed Deposit account. That is how this scheme favours investors and allows them to take a loan (70-90% of the amount deposited) against FD amount.

So, why not take a loan against this deposit than taking a loan for investment. Make sure you go through all rules and restrictions regarding fixed deposit investment. Think, Plan, Invest, Enjoy.