Don’t always play safe with FD1 min read . Updated: 20 Jul 2019, 01:37 PM IST
- Bank FD gives you are return of around 7-8% depending on the tenure and the bank
- But safety also means lower returns
Are you looking to invest your money? Usually your parents may ask you to invest in a fixed deposit (FD). Considering that it gives you a fixed return, you may opt for it to safely put your money aside. Bank FD gives you are return of around 7-8% depending on the tenure and the bank. The interest rate is fixed and since there is an insurance cover on FD of ₹1 lakh per person per bank, it can be considered as one of the safest investment options available. But safety also means lower returns. If you are a conservative investor and comfortable taking no risk in your investment, you would most likely opt for an FD.
COMPANY FIXED DEPOSIT
Besides banks, deposit-taking companies also offer FDs. Usually the interest rates on these FDs are 100-150 basis points higher than bank deposits. Also unlike bank deposits, company FDs come with a credit rating. Higher the credit ratings, lower will be the returns. However, a higher credit rating also means it is relatively less risky. But remember that company deposits are not protected like bank FDs. You need to understand the underlying risk in the company FDs before investing in it. To get a sense of the company, you should evaluate how the company is going to use the funds before investing in it.
SHOULD YOU OPT FOR FD?
Fixed deposits are relatively safer instruments. However, to create wealth and build your portfolio, you will need to have a mix of other asset classes such as equity as well. You can’t just rely on one instrument for wealth creation. If you are in your 20s you can consider investing a higher portion in equity. As a thumb rule, if you are 30 years old, you can have 70% of your investment in equity. As you grow older, you can increase your debt portion. If you are unable to do financial planning on your own, you should seek the help of a financial planner. Relying on FD will not be enough.