Fixed Deposit Returns: In today’s times of increasing market volatility, fixed deposits (FDs) are considered one of the safest investment options. Banks and financial institutions tout them as a stable income source, where the principal is completely protected and the investor receives a fixed return at a fixed interest rate. This is why millions of people choose to deposit their hard-earned money in FDs.

Experts believe that relying solely on FDs is not a wise investment decision. While this investment may be safe, it can reduce your returns over the long term due to inflation.

Benefits of Investing in FDs

The biggest advantage of fixed deposits is that your investment is completely safe. Whether the market goes up or down, your principal is unaffected. Furthermore, you receive returns at a pre-determined interest rate. FDs are best suited for those who are risk-averse and prioritize stable income. Additionally, FDs offer liquidity. This means you can prematurely withdraw funds if you need them in an emergency.

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FDs are a great investment vehicle

Even though FDs are considered safe investments, their returns typically fall below the inflation rate. For example, if inflation is 6% and your FD earns 6.5% interest, your real return after taxes is almost negligible. This reduces the purchasing power of your savings over the long term.

The interest earned on FDs is taxed, which impacts your total earnings. Especially for investors in higher tax brackets, the post-tax returns on FDs are significantly lower.

FDs are a safe investment vehicle

Financial advisors say that diversification is crucial. This means investing in a variety of options instead of investing all your money in a single investment instrument. This not only reduces risk but also increases the opportunity for good returns.

You can include mutual funds, bonds, NPS, EPF, PPF, and government schemes in your portfolio. All of these options are considered safe and, in many cases, offer higher returns than fixed deposits.

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Investments are balanced.

Every investor’s risk tolerance and financial goals are different. Therefore, it is important to select investments keeping both these factors in mind. If you are a low-risk investor, fixed deposits and government schemes are better for you. However, if you can take a little risk, equity and mutual funds can provide better returns in the long term.