Fixed deposit is the most popular investment instrument in India. Any Indian citizen can invest in fixed deposits and get assured returns.
People usually invest in fixed deposits to fulfill significant financial goals like house construction, motor vehicle purchase, wedding, higher education, etc. A fixed deposit can also help you plan your retirement efficiently.
However, before opening a fixed deposit account, wise investors evaluate a few factors to maximize the returns from their investment. Read on to learn about the top-5 factors you need to analyses before investing in a fixed deposit.
Here are the five top factors you need to analyses to increase the returns from your investment:
The duration of an FD is directly linked to its interest rate. You can typically get the best FD interest rates by choosing an extended duration. For example, ten-year fixed deposit returns are always higher than a one-year FD. FD duration usually ranges between one year and ten years. Hence, you can choose FDs for all types of financial goals – short-term (1-3 years), medium-term (3-5 years), and long-term (5-10 years).
Credit rating agencies like CRISIL and CARE evaluate multiple parameters to assign ratings to financial institutions. Any financial institution with CRISIL FAA+ or CARE AA rating is treated as the best. Hence, before opening a fixed deposit account, it is wise to check the financial institution’s credit rating to minimize your risks.
Presently, the best FD interest rates are hovering around 6.70%, and senior citizens can expect a 0.25% higher interest rate. Interest rates are of two types – cumulative and non-cumulative.
In the cumulative mode, the invested amount remains locked until maturity, and the accumulated interest and the principal gets credited at the term-end. But, in the non-cumulative mode, you can earn a fixed interest amount every month, quarter, half-yearly, or annually. Hence, before opening a fixed deposit account, you must choose the right type to get the best returns.
Generally, people apply for loans when they need money urgently. But, when you open a fixed deposit account, you automatically become eligible to avail a loan – loan against a fixed deposit. These loans allow you to withdraw up to 75% of your invested amount at a 2% higher interest rate than the prevailing best (highest) FD interest rates.
In this case, the loan term equals the FD term. Hence, if you have invested in a ten-years FD and apply for a loan in the second year, you can get eight years for loan repayment.
While all FDs are good, all financial institutions are not. Investors seldom analyse the financial institution’s features and value-added services before opening a fixed deposit account.
Generally, housing finance companies like PNB Housing offer the best FD interest rates. Moreover, you can get various value-added services for free, such as doorstep service, TDS exemption, online account opening facility, automatic renewal and maturity, and free nomination facility. Check whether your financial institution offers such features or not before investing in a fixed deposit.
If you want to get the best returns from your investment, it is wise to evaluate the parameters mentioned above before opening a fixed deposit account. In the world of investment, time is money. And, by investing in an FD instrument that delivers lesser returns than 6.70%, you risk losing the opportunity to grow your capital wisely.