Each investment instrument in your portfolio would serve a specific purpose. Fixed deposits can also play an important role, based on your investment goals. Here are a few reasons why a fixed deposit can be a good option for investment for you.
Balance a high-risk portfolio
One of the primary reasons to make portfolio investments is to balance the risk among different instruments. For example, an investment into mid- to small-cap equity caries a high risk. If such a risk is realized, you do not want to lose all your capital. Therefore, you should use low-risk debt instruments to balance your portfolio. A fixed deposit can fulfill this role perfectly as it offers a fixed, guaranteed return on the investment made.
Build a corpus at a low risk
If you wish to grow your funds over a long period without taking on any undue risk, a fixed deposit can be an ideal instrument for you. Choose a cumulative fixed deposit with a term of 10 years and let the best FD interest rates in India compound over the years. The magic of compounding ensures that your funds grow rapidly. This can be a good strategy when saving up for buying a car or a house.
Park surplus cash
If you are an entrepreneur and have any surplus cash – you should park it in a fixed deposit rather than in a savings account. The reason for this is simple: you would earn a much higher interest rate on FDs, without sacrificing on the liquidity of the funds. Further, if you have a large number of fixed deposits saved up, these can help you secure a large loan to expand your business or grab a new opportunity.
Meet section 80C limit
Tax-saving fixed deposits are tax-exempt under section 80C of the Income Tax Act. You can apply for a tax deduction of up to ₹1,50,000 under this section. In case you have not reached this goal yet, consider investing in a tax-saving fixed deposit to do so. These FDs have a lock-in period of five years, so make sure that your liquidity requirements for this period can be met even if you make this deposit.